Drexel University Econ 202: Principle of Macroeconomics Winter 2014 – Midterm MULTIPLE CHOICE SECTIO

Drexel University
Econ 202: Principle
of Macroeconomics
Winter 2014 – Midterm

MULTIPLE CHOICE
SECTION (30 Points Total, 3 Points each)
1. Suppose that
domestic prices increase. Which of the followings is most likely to happen?
(a) Net exports would
increase
(b) Net exports would
decrease
(c) No impact on net
exports
(d) Exports will be
equal to imports

2. Which of the
followings will be most likely to shift the consumption function downward
(a) a stock market
boom
(b) a price level
decrease
(c) lower disposable
income
(d) higher interest
rates

3. Suppose that
between 2008 and 2009 nominal GDP in the US grew by 3% and that between the
same
years in.ation was 3%.
The growh rate of real GDP between 2008-9 was:
(a) 6%
(b) 9%
(c) zero
(d) we can not tell

4. Suppose that, in
the US, in 2012, disposable income increased by $1 billion and that MPC was
0.9.
This means that (to a
good approximation) total consumption increased by
(a) $950 million
(b) $1 billion
(c) $900 million
(d) $100 million

5. The AD curve
describes the relationship between
(a) consumption and
disposable income
(b) consumption and
the price level
(c) the (demand-side) equilibrium level of
output and the price level
(d) the (demand-side)
equilibrium level of output and the interest rate

6. Economic growth is
driven by:
(a) growth in the
labor force
(b) growth in the
capital stock
(c) growth in
productivity of labor
(d) all of the above

7. A recession is a
period of time (few months) where:
(a) in.ation is
negative
(b) interest rate are
equal to zero
(c) total real GDP
falls
(d) .rms close due to
holidays

8. The unemployment
rate is the
(a) share of the
population which is not working
(b) share of the labor
force seeking jobs that is not working
(c) number of people
that can not .nd a job
(d) share of the
population that is retired

9. One USD is equal to
roughly 90 Japanese Yen. Suppose that the exchange rate goes up to 100 Yen
per Dollar. Which of
the followings is more likely to happen:
(a) Government
spending (G) will increase
(b) US imports from
Japan will decrease
(c) US imports from
Japan will increase
(d) Consumption (C)
will increase

10. In the US,
monetary policy is decided by the Federal Reserve, which, in case of recession
tries to
stimulate the economy
by
(a) cutting taxes to
households and .rms
(b) building new
infrastuctures to help production
(c) cutting interest
rates and/or printing more dollars
(d) exporting more
American products to Europe

SHORT ANSWER SECTION
(70 points total)
Please provide very
short answers to the following questions
11.15
Points. Suppose that in an imaginary country called “Coconut
Grove”, people consume always
the same basket of
goods: 100 coconuts and 25 bananas. The unit prices for these two goods are as
follows
Bananas Coconut
2011 $1 20c
2012 $2 15c
(a) Compute the dollar
value of the basket in both years
(b) Using 2011 as your base year, compute the
Consumer Price Index (CPI) in 2011 and 2012
(c) What is the CPI
in.ation rate between 2011 and 2012?

12.10
Points.Consider the following table (numbers are in millions)
real GDP Population
2011 10000 10
2012 11000 12
Compute the growth
rate of real GDP per capita between 2011 and 2012.

13.15
Points.Consumption is the largest component of aggregate demand in the US
economy. Brie.y
explain how the
following events might a¤ect its value. HINT:you have to say
whether consumption
would increase or
decrease, and give a brief economic explanation
(a) An increase in
interest rates on checking accounts from 0% (current value) to 1.5%
(b) A higher in.ation rate
(c) A forecast of a sustained boom in real GDP
starting in the Fall 2013.

14.15
Points. Between 2003 and 2009, US exports to Europe increased. As a result,
US net exports
with Europe went from
-$110 billion to $-72 billion. Highlight two factors that might have caused
this
change and brie.y explain
how:

15.15
Points.Consider the graph on pg. 12 of Slides Set #4.
Answer to the
followings
(a) Brie.y explain why
any point to the right of E cannot be an equilibrium.
(b) Suppose the price level goes up. On the
same graph given above, draw the new expenditure
schedule and .nd the
new equilibrium point.

Compute the level of
national income Y for which total spending in the economy is equal to national
income.

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