INTRODUCTION TO MACRO ECONOMICS

SPRING 2025

NAME________________________

SECTION___________________

QUIZ 2 B

A B C D
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
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25
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27
28
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30

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A B C D
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
1. An increase in taxes of a specific amount will have 6. If an unintended increase in business inventories
a smaller impact on the equilibrium GDP than will a occurs:
decline in government spending of the same amount A) we can expect aggregate production to be
because: unaffected.
A) the MPC is smaller in the private sector than it is B) we can expect businesses to increase the level of
in the public sector. production.
B) declines in government spending always tend to C) we can expect businesses to lower the level of
stimulate private investment. production.
C) disposable income will fall by some amount D) aggregate expenditures must exceed the domestic
smaller than the tax increase. output.
D) some of the tax increase will be paid out of
income that would otherwise have been saved. 7. Which of the following statements is correct for a
private closed economy?
2. Which of the following is not economic A) Saving equals planned investment only at the
investment? equilibrium level of GDP.
A) the purchase of a drill press by the Ajax B) All levels of GDP where planned investment
Manufacturing Company exceeds saving will be too high for equilibrium.
B) the purchase of 100 shares of AT&T by a retired C) Planned and actual investment are identical at all
business executive possible levels of GDP.
C) construction of a suburban housing project D) Saving equals actual investment only at the
D) the piling up of inventories on a grocer's shelf equilibrium level of GDP.

3. Suppose the economy is operating at its full- 8. Suppose a family's consumption exceeds its
employment-noninflationary GDP and the MPC is disposable income. This means that its:
0.75. The Federal government now finds that it must A) MPC is greater than 1.
increase spending on military goods by $21 billion in B) MPS is negative.
response to a deterioration in the international C) APC is greater than 1.
political situation. To sustain full-employment- D) APS is positive.
noninflationary GDP government must:
A) reduce taxes by $28 billion. 9. In the aggregate expenditures model, it is assumed
B) reduce transfer payments by $21 billion. that investment:
C) increase taxes by $21 billion. A) automatically changes in response to changes in
D) increase taxes by $28 billion. real GDP.
B) changes by less in percentage terms than changes
4. The multiplier associated with a change in in real GDP.
government purchases is: C) does not respond to changes in interest rates.
A) always equal to 1. D) does not change when real GDP changes.
B) smaller than that associated with an equal change
in taxes. 10. Given the consumption schedule, it is possible to
C) the same as that associated with a change in graph the relevant saving schedule by:
investment. A) subtracting the MPC from 1 at each level of
D) less than that associated with a change in income.
investment. B) subtracting investment from consumption at each
level of GDP.
5. Suppose that a mixed open economy is producing C) plotting the horizontal differences between the
at its equilibrium income and that net exports are consumption schedule and the 45-degree line.
zero. If at the equilibrium income the public sector's D) plotting the vertical differences between the
budget shows a surplus: consumption schedule and the 45-degree line.
A) Ca + Ig + Xn + G must exceed GDP.
B) planned investment must exceed saving. 11. Actual investment is $62 billion at an equilibrium
C) a recessionary gap must exist. output level of $620 billion in a private closed
D) saving must exceed planned investment. economy.
The average propensity to save at this level of output A) Disposable income will increase by the amount
is: of the tax and consumption at each level of GDP will
A) .10. B) 10. decline by the amount of the tax multiplied by the
C) .62. D) .84. MPC.
B) Disposable income will decline by the amount of
12. In which of the following situations for a mixed the tax and consumption at each level of GDP will
open economy will the level of GDP expand? decline by the amount of the tax multiplied by the
A) when Ig + X + G exceeds Sa + M + T multiplier.
B) when Sa + T + M exceeds Ig + G + X C) Disposable income will decline by the amount of
C) when GDP exceeds Ca + Ig + G + Xn D) the tax and consumption at each level of GDP will
when Ig + M + T exceeds Ca + X + S also decline by the amount of the tax.
D) Disposable income will decline by the amount of
13. Nominal GDP is adjusted for price changes the tax and consumption at each level of GDP will
through the use of: decline by the amount of the tax multiplied by the
A) the Consumer Price Index (CPI). MPC.
B) the Producer Price Index (PPI).
C) the GDP price index. 19. The GDP is the:
D) exchange rates. A) monetary value of all final goods and services
produced within a nation in a particular year.
14. Gross domestic product (GDP) measures and B) national income minus all nonincome charges
reports output: against output.
A) as an index number. C) monetary value of all economic resources used in
B) in percentage terms. producing a year's output.
C) in dollar amounts. D) monetary value of all goods and services, final
D) in quantities of physical units (for example, and intermediate, produced in a specific year.
pounds, gallons, and bushels).
20. In a mixed open economy, which of the following
15. If nominal GDP rises: all affect the equilibrium GDP in the same direction?
A) real GDP may either rise or fall. A) Ca, Ig, Sa, and M
B) we can be certain that the price level has risen. B) Sa, T, and M
C) real GDP must fall. C) Ig, T, and Ca
D) real GDP must also rise. D) Sa, Ig, and X

16. In comparing GDP data over a period of years, a 21. The investment demand curve portrays an inverse
difference between nominal and real GDP may arise (negative) relationship between:
because: A) investment and real GDP.
A) of changes in trade deficits and surpluses. B) the real interest rate and investment.
B) the length of the workweek has declined C) the nominal interest rate and investment.
historically. D) the price level and investment.
C) the price level may change over time.
D) depreciation may be greater or smaller than gross 22. An upward shift of the aggregate expenditures
investment. schedule might be caused by:
A) a decrease in exports, with no change in imports.
17. If unintended increases in business inventories B) a decrease in imports, with no change in exports.
occur, we can expect: C) an increase in exports, with an equal decrease in
A) a decline in GDP and rising unemployment. investment spending.
B) inflation. D) an increase in imports, with no change in exports.
C) an increase in consumption. Use the following to answer questions 41-42:
D) an offsetting increase in planned investment. Economy A: gross investment equals depreciation
18. Which of the following is a correct statement of Economy B: depreciation exceeds gross investment
the impacts of a lump-sum tax? Economy C: gross investment exceeds depreciation
23. Refer to the above information. Positive net 28. Refer to the above data. The marginal propensity
investment is occurring in: to consume is:
A) economy A only. A) .80. B) .75.
B) economy B only. C) .20. D) .25.
C) economy C only.
D) economies A and B only. 29. Refer to the above data. At the $100 level of
income, the average propensity to save is:
24. Other things equal, the above information A) .10. B) .20.
suggests that the production capacity in economy: C) .25. D) .90.
A) B is growing more rapidly than either A or C.
B) A is growing more rapidly than either B or C. 30. Refer to the above data. If plotted on a graph, the
C) A is growing less rapidly than economy B. slope of the saving schedule would be:
D) C is growing more rapidly than economy B. A) .80. B) .10.
C) .20. D) .15.
25. Transfer payments are:
A) excluded when calculating GDP because they 31. One can determine the amount of any level of
only reflect inflation. total income that is consumed by:
B) excluded when calculating GDP because they do A) multiplying total income by the slope of the
not reflect current production. consumption schedule.
C) included when calculating GDP because they are B) multiplying total income by the APC.
a category of investment spending. C) subtracting the MPS from total income.
D) included when calculating GDP because they D) multiplying total income by the MPC.
increase the spending of recipients.
32. Which of the following will not tend to shift the
26. National income measures: consumption schedule upward?
A) nominal GDP after it has been inflated or deflated A) a currently small stock of durable goods in the
for changes in the value of the dollar. possession of consumers
B) the after-tax income of resource suppliers. B) the expectation of a future decline in the
C) the market value or cost of the resources used in consumer price index
the production of the national output. C) a currently low level of household debt.
D) the amount of wage, rent, interest, and profits D) the expectation of future shortages of essential
income actually received by households. consumer goods.

27. The consumption and saving schedules reveal 33. Which one of the following will cause a
that the: movement down along an economy's consumption
A) MPC is greater than zero, but less than one. schedule?
B) MPC and APC are equal at the point where the A) an increase in stock prices
consumption schedule intersects the 45-degree line. B) a decrease in stock prices
C) APS is positive at all income levels. C) an increase in consumer indebtedness
D) MPC is equal to or greater than one at all income D) a decrease in disposable income
levels.
34. What will be the effect of an excess of planned
Use the following to answer questions 28-30: investment over saving in a private closed economy
Answer the next question(s) on the basis of the with unemployed resources?
following data for a hypothetical economy. A) a decline in the rate of interest
Disposable B) an unintended accumulation of inventories by
Income Saving businesses
$ 0 $-10 C) a rise in the real GDP
50 0 D) the Federal budget will automatically move
100 10 toward a deficit
150 20
200 30
35. In which of the following situations for a private D) the reduction of trade barriers permits producers
closed economy will the level of GDP expand? to achieve mass-production economies.
A) when planned investment exceeds saving
B) when planned investment exceeds consumption 42. The APC is calculated as:
C) when saving exceeds consumption A) change in consumption / change in income
D) when consumption exceeds investment B) consumption / income
C) change in income / change in consumption
36. In national income accounting, consumption D) income / consumption
expenditures include purchases of:
A) both new and used consumer goods. 43. Which of the following is correct?
B) automobiles for personal use, but not houses. A) APC + APS = 1. B) APC + MPS = 1.
C) consumer durable and nondurable goods, but not C) APS + MPC = 1. D) APS + MPS = 1.
services.
D) consumer nondurable goods and services, but not 44. If the exchange rate changes from $1 = 2 euros to
consumer durable goods. $1 = 3 euros:
A) the dollar has appreciated in value.
37. In a private closed economy__________ B) the dollar has depreciated in value.
investment is equal to saving at all levels of GDP C) the dollar has neither appreciated nor
and equilibrium occurs only at that level of GDP depreciated, but the euro has appreciated in value.
where_______ investment is equal to saving. D) U.S. exports to Europe will increase.

A) planned; actual B) actual; planned 45. The Uruguay Round of GATT negotiations
C) gross; net D) net; gross completed in late 1993:
A) established a free trade zone between the United
38. Transfer payments are included in: States and Mexico.
A) NI. B) PI. B) made the Russian ruble convertible into other
C) GDP. D) NDP. currencies.
C) created the European Union (EU).
39. The most important determinant of consumer D) created international protections for intellectual
spending is: property such as patents, copyrights, and trademarks.
A) the level of household debt.
B) consumer expectations. 46. If incomes rise rapidly in the United States and
C) the stock of wealth. U.S. preferences for foreign goods strengthen, we
D) the level of income. would expect:
A) the dollar to appreciate in value.
40. The 45-degree line on a graph relating B) the dollar to depreciate in value.
consumption and income shows: C) the dollar price of foreign monies to decrease.
A) all points where the MPC is constant. D) U.S. exports to increase.
B) all points at which saving and income are equal.
C) all the points at which consumption and income 47. Depreciation of the dollar will:
are equal. A) increase the prices of U.S. imports, but decrease
D) the amounts households will plan to save at each the prices of U.S. exports.
possible level of income. B) decrease the prices of U.S. imports, but increase
the prices of U.S. exports.
41. The primary economic advantage of the European C) increase the prices of both U.S. imports and
Union (EU) to its members is that: exports.
A) the tax structures of each participating nation D) decrease the prices of both U.S. imports and
have been made nearly identical. exports.
B) each nation is free to formulate its own antitrust
and agricultural policies. 48. The concept of net domestic investment refers to:
C) participating nations use a common currency. A) the amount of machinery and equipment used up
in producing the GDP in a specific year. B) the
difference between the market value and book value C) both Landia and Scandia have a comparative
of outstanding capital stock. advantage in fish.
C) gross domestic investment less net exports. D) Both Landia and Scandia have a comparative
D) total investment less the amount of investment advantage in chips.
goods used up in producing the year's output.
54. Refer to the above data. If Landia and Scandia
49. If the marginal propensity to consume is .9, then fully specialize based on comparative advantage,
the marginal propensity to save must be: their aggregate output will be:
A) 1. B) .1. A) 48 chips and 8 fish.
C) 1.1. D) .9. B) 40 chips and 16 fish.
C) 36 chips and 10 fish.
50. The relationship between consumption and D) 42 chips and 12 fish.
disposable income is such that:
A) an inverse and stable relationship exists between 55. Refer to the above data. Assume that before
consumption and income. specialization and trade Landia was producing
B) a direct, but very volatile, relationship exists combination C and Scandia was producing
between consumption and income. combination B. If these two nations now specialize
C) a direct and relatively stable relationship exists completely based on with comparative advantage, the
between consumption and income. total gains from specialization and trade would be:
D) the two are always equal. A) 8 fish and 2 chips. B) 10 fish and 4 chips.
C) 0 fish and 8 chips. D) 4 fish and 6 chips.
Use the following to answer questions 51-55:
Answer the next question(s) on the basis of the 56. Refer to the above data. Which of the following
following production possibilities data for Landia and would be feasible terms of trade between Landia and
Scandia: Scandia?
Landia production possibilities: A) 1 fish for 4 chips B) 1 fish for 6 chips
A B C D E C) 1 fish for 7 chips D) 2 fish for 4 chips
Fish 8 6 4 2 0
Chips 0 10 20 30 40 57. Exchange rates are particularly important
because:
Scandia production possibilities:
A) they present a challenge to financial speculators.
A B C D E B) they link the price levels of various nations to
Fish 16 12 8 4 0 one another.
Chips 0 12 24 36 48 C) they represent exceptions to the laws of demand
and supply.
D) equilibrium is never achieved in such markets.
51. Refer to the above data. The domestic
opportunity cost of 1 fish in Landia is:
58. According to the concept of comparative
A) 10 chips. B) 2 chips.
advantage, a good should be produced in that nation
C) 4 chips. D) 5 chips.
where:
A) its domestic opportunity cost is greatest.
52. Refer to the above data. The domestic
B) money is used as a medium of exchange.
opportunity cost of 1 fish in Scandia is:
C) its domestic opportunity cost is least.
A) 12 chips. B) 4 chips.
D) the terms of trade are maximized.
C) 3 chips. D) 1 chip.
59. The terms of trade:
53. On the basis of the production possibilities data
A) show the ratio at which nations will exchange
shown:
two goods.
A) Landia has a comparative advantage in chips
B) show how the gains from trade can be equally
while Scandia has a comparative advantage in fish.
shared.
B) Landia has a comparative advantage in fish while
C) show the value of one nation's currency in terms
Scandia has a comparative advantage in chips.
of another nation's currency.
D) compare the volume of a nation's exports and
imports.

60. The World Trade Organization (WTO):

A) sets tariffs to balance international trade among
nations.
B) is the successor to GATT.
C) is better known as the European Union.
D) sets exchange rates to balance international trade
among nations.
Q1) Using the following data calculate the value of multipliers under
1) Private Closed Economy (PCE)
2) Private Open Economy (POE)
3) Mixed Open Economy (MOE)
Why are they different?

C=200+0.95 Y d
C a=200+ 0.95Y d
I =70
X =50
M =50−0.1 Y
T =20−0.2Y
G=100
Q2) Below is a list of domestic output and national income figures for a certain year. All figures are in billions. The
questions that follow ask you to determine the major income measures by both the expenditure and income
approaches. The results you obtain with the different methods should be same

Personal consumption expenditure $400 Dividends 24

Net foreign factor income 10 Compensation of employees 370
Transfer payments 10 Taxes on production and imports 50
Rents 15 Undistributed corporate profits 20
Statistical discrepancy 40 Personal taxes 45
Consumption of fixed capita(depreciation) 5 Corporate income taxes 40
Social security contributors 20 Corporate profits 100
Interest 25 Government purchases 130
Proprietors income 50 Net private domestic investment 90
Net exports 10 Personal savings 20

a) Using the above data, determine GDP by both the expenditure and income approaches. Then determine
NDP
b) Now determine NI in two ways: first, by making required additions or subtractions from NDP; and second
by adding up the types of income and taxes the make-up NI
c) Adjust NI( from part b) as required to obtain PI
d) Adjust PI (from part c) as required to obtain DI