ECON 210

FALL 2010, SECOND HOMEWORK

Name___________________________________
(Due date: 7 December 2010. Do not forget to hand in your
answers in optical forms. You can hand in your answers in class as
well.)

MULTIPLE CHOICE. Choose the one alternative that best completes the
statement or answers the question.

1) Use the following information to answer this question. If 1) ______

nominal GDP rises from $40 trillion to $48 trillion, while the
GDP deflator rises from 2.0 to 2.4, the percentage change in
real GDP is:
A) 9.1
%.
B) 0%.
C)
-10%.
D) 20%
.
E) 10%.
2) Someone is classified as unemployed if he or she: 2) ______
A) does not have a job, has recently looked for work, and is
collecting unemployment insurance.
B) does not have a job, and is collecting unemployment
insurance.
C) does not have a job, or else has a job but is looking for a
different one while continuing to work.
D) does not have a job.
E) none of the above
3) The GDP deflator provides a measure of which of the 3) ______
following?
A) the ratio of GDP to the size of the population
B) real GDP divided by the aggregate price level
C) the price of a typical consumer's basket of
goods
D) the ratio of GDP to the number of workers
employed
E) the ratio of nominal GDP to real GDP
4) Deflation generally occurs when which of the following 4) ______
occurs?
A) the consumer price index decreases
B) the consumer price index is greater than the GDP
deflator
C) the rate of inflation falls, for example, from 4% to
 2%
D) nominal GDP does not change
5) Suppose nominal GDP in 2005 increased by 5% (over its 5) ______
previous level in 2004). Given this information, we know with
certainty that:
A) both the GDP deflator and real GDP increased
during 2005.
B) the GDP deflator increased during 2005.
C) real GDP increased during 2005.
D) More information is needed to answer this question.
6) An economy is assumed to be closed when: 6) ______
A) G = T.
B) S = I.
C) X = IM.
D) G = T = 0.
E) none of the
above
7) Suppose the consumption equation is represented by the 7) ______
following: C =500 + 0.6YD and investment equation is
represented by the following: I=0.2Y. The multiplier in this
economy is:
A) 0.2
.
B) 0.8
.
C) 2.5
D) 4.
E) 5.
8) Equilibrium in the goods market requires that: 8) ______
A) consumption equals income.
B) production equals income.
C) government spending equals taxes minus
transfers.
D) production equals demand.
E) consumption equals saving.
9) A reduction in the marginal propensity to consume from .7 9) ______
to .6 will cause:
A) the ZZ line to become flatter and a given change in
autonomous consumption (c0) to have a smaller effect on output
B) the ZZ line to become steeper and a given change in
autonomous consumption (c0) to have a smaller effect on output
C) the ZZ line to become flatter and a given change in
autonomous consumption (c0) to have a larger effect on output
D) the ZZ line to become steeper and a given change in
autonomous consumption (c0) to have a larger effect on output
10) Which of the following is NOT a characteristic of bonds? 10) ______
 A) pay zero interest
B) are sold for a price that varies inversely with the
interest rate
C) cannot be used for transactions
D) all of the above
E) none of the above
11) We know that the amount of money that individuals want to 11) ______
hold will:
A) increase as the interest rate
increases.
B) decrease as the interest rate
increases.
C) increase as income decreases.
D) none of the above
12) Which of the following will cause a LEFTWARD shift in the 12) ______
money demand curve?
A) a reduction in the interest
rate
B) an increase in the money
supply
C) a reduction in income
D) all of the above
E) none of the above
13) Suppose a one-year discount bond offers to pay $1000 in one 13) ______
year and currently sells for $950. Given this information, we
know that the interest rate on the bond is:
A) 5.3%
.
B) 9.5%
.
C) 10%.
D) 90%.
E) 110
%.
14) Which of the following generally occurs when a central bank 14) ______
pursues contractionary monetary policy?
A) the central bank sells bonds and the interest rate
increases
B) the central bank purchases bonds and the interest rate
decreases
C) the central bank purchases bonds and the interest rate
increases
D) the central bank sells bonds and the interest rate
decreases
15) Which of the following will not cause a shift of the IS curve? 15) ______
A) an increase in government
 spending
B) an increase in taxes
C) an increase in the money
supply
D) all of the above
E) none of the above
16) Which of the following is true for a given point on the LM 16) ______
curve?
A) Production is equal to demand.
B) No inventory investment equals
zero.
C) The goods market is in
equilibrium.
D) all of the above
E) none of the above
17) Suppose the economy is operating on the LM curve but not 17) ______
on the IS curve. Given this information, we know that:
A) the money market and bond markets are in equilibrium and
the goods market is not in equilibrium.
B) the goods market is in equilibrium and the money market is
not in equilibrium.
C) the money market and goods market are in equilibrium and
the bond market is not in equilibrium.
D) the money, bond and goods markets are all in equilibrium.
E) neither the money, bond, nor goods markets are in
equilibrium.
18) An increase in the money supply will cause a reduction in 18) ______
which of the following variables?
A) output
B) consumption
C) investment
D) interest rate
E) none of the
above
19) For this question, assume that investment spending depends 19) ______
only on the interest rate and no longer depends on output.
Given this information, a reduction in the money supply:
A) will cause investment to decrease.
B) will have no effect on output.
C) will cause investment to increase.
D) will cause a reduction in output and have no effect on the
interest rate.
E) may cause investment to increase or to decrease.
20) For this question, assume there is perfect competition in the 20) ______
product market. Given this assumption, we know that m (in
the price setting equation P = (1+m)W) will equal:
 A) 1.
B) 0.
C) W/P.
D) W.
E) P.
21) A reduction in the minimum wage will tend to cause which of 21) ______
the following?
A) an upward shift in the WS
curve
B) a downward shift in the WS
curve
C) an upward shift in the PS
curve
D) a downward shift in the PS
curve
E) none of the above
22) The aggregate supply curve will shift up when which of the 22) ______
following occurs?
A) a reduction in unemployment benefits
B) a reduction in the expected price level
C) a reduction in firms' markup over labor
costs
D) all of the above
E) none of the above
23) Based on your understanding of the AS/AD model, which of 23) ______
the following is an INCORRECT statement about the short-run
adjustment process for the macroeconomy?
A) An increase in output above the natural level leads to higher
nominal wages.
B) A reduction in employment leads to lower prices.
C) Output in excess of the natural level leads to higher prices.
D) An increase in demand increases output.
E) none of the above
24) Assume the economy is initially operating at the natural level 24) ______
of output. Now suppose a budget is passed that calls for a tax
cut. This fiscal expansion will, in the short run, cause an
increase in:
A) the price level.
B) the nominal
wage.
C) the interest
rate.
D) all of the above
E) none of the
above
25) For this question, assume that the economy is initially 25) ______
operating at the natural level of output. A monetary
expansion will cause:
A) a reduction in the interest rate in the
medium run.
B) an increase in investment in the medium
run.
C) no change in the nominal wage in the
medium run.
D) no change in the real wage in the medium
run.