ECO 372 Final Exam

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ECO 372 Week 5 Final Exams 1. News Story: Workers at a car-manufacturing plant in Flint,
Michigan are laid off because the economy is weak and GM cars
aren't selling well. GM isn't sure when the plant will reopen.
What type of unemployment describes the workers' situation?
Frictional unemployment
Structural unemployment
Full unemployment
Cyclical unemployment
2. Globalization that allows governments to pursue
expansionary policies can be dangerous because it can lead to:
A reduction in the debt ceiling
Goods price inflation
Asset price inflation
Goods price deflation

3. Macroeconomics is:
The study of aggregate economic relationships.

An analysis of economic reality that proceeds from the

parts to the whole.
The study of pricing policies of firms and the purchasing
decisions of households.
The study of individual choice and how that choice is
influenced by economic forces.
4. Which of the following types of unemployment is considered
to
be
the
most
controllable
through
demand-side
macroeconomic policy?
Frictional unemployment
Cyclical unemployment
Structural unemployment
Natural unemployment
5. If banks hold excess reserves whereas before they did not,
the money multiplier:
Will become smaller
Will become larger
Might increase or might decrease
Will be unaffected
6. Using the expenditure approach, gross domestic product
equals:

 The sum of consumption,

purchases, and net exports

investment,

government

Gross national product minus net exports

The sum of consumption, investment, and government
purchases
Gross national product
7. How do investment in technology and investment in capital
differ?
They have similar effects on output so they have no
important differences from an economic point of view.

They have the same effects on output but investments in

technology are much more closely tied to the level of
saving than investments in capital.
They have different effects on output because of the
positive externalities associated with investments in
capital.
They have different effects on output because of the
positive externalities associate with investments in
technology.
8. The interest rate is the price paid for use of a:
Real asset.
Financial liability.
Financial asset.
Real liability.

9. If the reserve requirement is 20 percent, and banks keep no

excess reserves, an increase in an initial inflow of $100 into the
banking system will cause an increase in the money supply of:
$50
$100
$500
$20
10. Suppose farmers can use their land to grown either wheat
or corn. The law of supply predicts that an increase in the
market price of wheat will cause:
Farmers to substitute wheat for the production of corn.
Farmers to raise the production of corn and wheat.
Farmers to lower the production of corn and wheat.
Farmers to substitute corn for the production of wheat.
11. According to Keynes, why might deflation create problems
for an economy?

In expectation of increased spending, too many

entrepreneurs would begin businesses and most would
fail.
The cost of repricing goods would increase costs, and
therefore reduce profits, for businesses and they would cut
production.

 People would drop out of unions because unions would

become ineffective at keeping wages of members high.
Consumers might expect prices to fall further and cut back
consumption now.
12. When interest rates rise, people are:
More likely to borrow, that is, purchase a financial asset.
More likely to borrow, that is, sell a financial asset.
Less likely to borrow, that is, sell a financial asset.
Less likely to borrow, that is, purchase a financial asset.
13. According to the Classical growth model, an economy that
increases its saving will grow:
Quickly since the increase in saving will permit greater
investment.
Quickly since the increase in saving will permit more rapid
technological progress.
Slowly because interest rates will fall, causing investment
to decline.
Slowly because consumption and aggregate demand will
be reduced.
14. Suppose that consumer spending is expected to decrease in
the near future. If output is at potential output, which of the
following policies is most appropriate according to the AS/AD
model?
A reduction in government spending
An increase in taxes

 An increase in government spending

No change in taxes or government spending
15. Which of the following topics is best characterized as a
macroeconomic issue?

The effect of a drought on the price of corn

The decision by Apple to produce fewer Macintosh
computers
The effect of an increase in federal spending on the
unemployment rate
The choice a student makes in selecting college course
16. If income increases more rapidly than expected, then:
Estimates of the target rate of employment are likely to
increase.
The budget is less likely to be in surplus.
Tax revenues will be lower than expected.
Spending on income-support programs will likely be lower
than expected.

17. In which of the following situations is a budget surplus most

likely to occur?
When fiscal policy is contractionary and the economy is
expanding
When fiscal policy is expansionary and the economy is
contracting

 When fiscal policy is expansionary

When the economy is contracting
18. The largest expenditure component of GDP is:
Government spending
Net exports
Investment
Consumption
19. Which of the following is the path through which
contractionary monetary policy works?
Money down implies interest rate up implies investment
up implies income down.
Money down implies interest rate down implies investment
down implies income down.

Money down implies interest rate up implies investment

down implies income down.
Money down implies interest rate down implies investment
up implies income down.
20. As a country develops economically, what changes usually
take place in the goods it exports?
There is little change because comparative advantage
does not change.
Exports go from being diversified to being specialized in
whatever the country finds to its comparative advantage.

 Services and manufactured goods decline in importance

and are replaced by raw materials and agricultural
products.
Raw materials and agricultural products decline in
importance and are replaced by services and
manufactured goods.
21. What would make foreigners want to buy more from the
United States?
Higher tariffs
Higher interest rates in the United States
Inflation in the United States
A fall in the value of the dollar in the foreign exchange
market
22. The depreciation of currency will:
Balance a trade surplus.
Have no impact on a country's comparative advantage.
Worsen a country's comparative advantage.
Improve a country's comparative advantage.
23. The government of Crossland wants to influence its
exchange rate. It will do so by buying and selling:
Currencies in its official reserves
Commodities
Goods and services from the current account
Transfers

24. If a country wants to prevent its exchange rates from

falling, it could:
Place restrictions on imports
Pursue easier monetary policy
Remove any subsidies on exports
Remove restrictions on imports
25.Central banks are responsible for:
Both monetary policy and fiscal policy
Monetary policy but not fiscal policy
Neither monetary policy nor fiscal policy
Fiscal policy but not monetary policy
26. Quotas and tariffs can:
Never have the same effect on imports and import prices.
Have the same effect on the price of domestically
produced goods if they are set appropriately.
Yield the same amount of tax revenue if they are set
appropriately.
Both increase international trade by the same amount if
set appropriately.
27. Between 2007 and 2009, the U.S. unemployment rate rose
from under 5 percent to over 8 percent. A Keynesian economist
would most likely blame this increase in unemployment on:
An increase in the minimum wage.

 An increase in the bargaining power of labor unions.

A decline in the level of aggregate demand.
A decline in aggregate supply.
28. U.S. imports involve an:
Inflow of foreign currency from foreigners to the U.S.
economy
Inflow of dollars from foreigners to the United States
economy
Outflow of foreign currency from the United States to
foreigners

Outflow of dollars from the United States to foreigners

29. The law of demand states that quantity demanded of a
good is inversely related to the price of that good. Therefore, as
the price of a good goes:

Up, the quantity demanded goes down.

Down, the quantity demanded stays the same.
Up, the quantity demanded also goes up.
Down, the quantity demanded goes down.

30.According to Keynes, market economies:

Never experience
demand.

significant

Are constantly experiencing

aggregate demand.

declines
significant

in

aggregate
declines

in

May recover slowly after they experience a significant

decline in aggregate demand.

 Quickly recover after they experience a significant decline

in aggregate demand.

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