ECON 101: Final Exam � Key Concepts in Macroeconomics

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ECON Final ExamQuestion 1Historical evidence for the U.S. economy indicates thatAnswerrecessions have occurred roughly once every six years since the 1960s.theunemployment rate usually decreases during a recession and increases shortly after therecession ends.real GDP usually remains roughly constant during a recession and decreases shortly after therecession ends.changes in real GDP over the business cycle are largely attributable to changes in investmentover the business cycle.2 pointsQuestion 2Which of the following is most commonly used to monitor short-run changes in economicactivity?Answerthe inflation ratereal GDPaggregate demandaggregate supply2 pointsQuestion 3During recessions investmentAnswerfalls by a larger percentage than GDP.falls by about the same percentage as GDP.falls by a smaller percentage than GDP.fallsbut the percentage change is sometimes much larger and sometimes much smaller2 pointsQuestion 4The classical model is appropriate for analysis of the economy in theAnswerlongrun, since evidence indicates that money is not neutral in the long run.long run, since real and nominal variables are essentially determined separately in the long run.short run, provided money is not neutral.short run, provided real and nominal variables are highly intertwined.2 pointsQuestion 5Real and nominal variables are highly intertwined, and changes in the money supply change realGDP. Most economists would agree that this statement accurately describesAnswerboth the short run and the long run.the short run, but not the long run.the long run, but not the short run.neither the long run nor the short run2 points

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Question 6Aggregate demand includesAnswerthequantity of goods and services both the government and customers abroad want to buy.the quantity of goods and services neither the government nor customers abroad want to buy.the quantity of goods and service the government wants to buy, but not the quantity of goods andservices customers abroad want to buy.the quantity of goods and services customers abroad want to buy, but not the quantity of goodsand services the government wants to buy.2 pointsQuestion 7The model of aggregate demand and aggregate supplyAnsweris different from the model of supply and demand for a particular market, in that we cannot focuson the substitution of resources between markets to explain aggregate relationships.is different from the model of supply and demand for a particular market, in that we have toseparate real and nominal variables in the aggregate model.is a straightforward extension of the model of supply and demand for a particular market, inwhich substitution of resources between markets is highlighted.isa straightforward extension of the model of supply and demand for a particular market, inwhich the interaction between real and nominal variables is highlighted.2 pointsQuestion 8When the price level falls the quantity ofAnswerconsumption goods demanded rises, while the quantity of net exports demanded fallsconsumption goods demanded and the quantity of net exports demanded both rise.consumption goods demanded and the quantity of net exports demanded both fall.consumption goods demanded falls, while the quantity of net exports demand rises.2 pointsQuestion 9When the price level changes, which of the following variables will change and thereby cause achange in the aggregate quantity of goods and services demanded?Answerthereal value of wealththe interest ratethe value of currency in the market for foreign exchangeAll of the above are correct.2 pointsQuestion 10Other things the same, a decrease in the price level makes the dollars people hold worthAnswermore, so they can buymore.more, so they can buy less.

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less, so they can buy more.less, so they can buy less.2 pointsQuestion 11When the price level fallsAnswerhouseholdswant to lend more, so the interest rate rises making the quantity of goods andservices demanded rise.households want to lend more, so the interest rate falls, making the quantity of goods andservices demanded rise.households want to lend more, so the interest rate rises, making the quantity of goods andservices demanded fall.None of the above are correct.2 pointsQuestion 12Other things the same,if the U.S. price level falls, thenAnswerthe supply of dollars in the market for foreign-currency exchange increases, so the exchange raterises.the supply of dollars in the market for foreign-currency exchange increases, so the exchange ratefalls.thesupply of dollars in the market for foreign-currency exchange decreases, so the exchange raterises.the supply of dollars in the market for foreign-currency exchange decreases, so the exchange ratefalls.2 pointsQuestion 13As the price level rises,Answerthe exchange rate falls, so net exports fall.the exchange rate falls, so net exports rise.the exchange rate rises, so net exports fall.the exchange rate rises, so net exports rise.2 pointsQuestion 14Other things the same,as the price level rises, the real value of a dollarAnswerrises, and interest rates rise.rises, and interest rates fall.falls, and interest rates rise.falls, and interest rates fall.2 pointsQuestion 15Other things the same,as the price level falls, acountry’s exchange rateAnswerand interest rates rise.

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