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ECON 101: Final Exam � Key Concepts in Macroeconomics

A solved final exam covering fundamental macroeconomic theories, GDP analysis, and fiscal policy.

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    ECON Final Exam Question 1 Historical evidence for the U.S. economy indicates that Answer recessions have occurred roughly once every six years since the 1960s. the unemployment rate usually decreases during a recession and increases shortly after the recession ends. real GDP usually remains roughly constant during a recession and decreases shortly after the recession ends. changes in real GDP over the business cycle are largely attributable to changes in investment over the business cycle. 2 points Question 2 Which of the following is most commonly used to monitor short - run changes in economic activity? Answer the inflation rate real GDP aggregate demand aggregate supply 2 points Question 3 During recessions investment Answer falls by a larger percentage than GDP. falls by about the same percentage as GDP. falls by a smaller percentage than GDP. falls but the percentage change is sometimes much larger and sometimes much smaller 2 points Question 4 The classical model is appropriate for analysis of the economy in the Answer long run, 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 points Question 5 Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes Answer both 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 run 2 points

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    Question 6 Aggregate demand includes Answer the quantity 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 and services customers abroad want to buy. the quantity of goods and services customers abroad want to buy, but not the quantity of goods and services the government wants to buy. 2 points Question 7 The model of aggregate demand and aggregate supply Answer is different from the model of supply and demand for a particular market, in that we cannot focus on 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 to separate real and nominal variables in the aggregate model. is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted. is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted. 2 points Question 8 When the price level falls the quantity of Answer consumption goods demanded rises, while the quantity of net exports demanded falls consumption 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 points Question 9 When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded? Answer the real value of wealth the interest rate the value of currency in the market for foreign exchange All of the above are correct. 2 points Question 10 Other things the same, a decrease in the price level makes the dollars people hold worth Answer more, so they can buy more. more, so they can buy less.

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    less, so they can buy more. less, so they can buy less. 2 points Question 11 When the price level falls Answer households want to lend more, so the interest rate rises making the quantity of goods and services demanded rise. households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise. households want to lend more, so the interest rate rises, making the quantity of goods and services demanded fall. None of the above are correct. 2 points Question 12 Other things the same , if the U.S. price level falls, then Answer the supply of dollars in the market for foreign - currency exchange increases, so the exchange rate rises. the supply of dollars in the market for foreign - currency exchange increases, so the exchange rate falls. the supply of dollars in the market for foreign - currency exchange decreases, so the exchange rate rises. the supply of dollars in the market for foreign - currency exchange decreases, so the exchange rate falls. 2 points Question 13 As the price level rises, Answer the 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 points Question 14 Other things the same , as the price level rises, the real value of a dollar Answer rises, and interest rates rise. rises, and interest rates fall. falls, and interest rates rise. falls, and interest rates fall. 2 points Question 15 Other things the same , as the price level falls, a country’s exchange rate Answer and interest rates rise.

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