ECON 2301 Final EXAM (2)

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Texas Southmost College *

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Economics

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Jan 9, 2024

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ECON 2301 – Final EXAM FALL 2023 I. Multiple Choice: _______ 1. Refer to the graph shown below. Which graph will lead to a lower real GDP and to pressure for a higher price level and inflation? A. Graph A B. Graph B C. None of the above D. Both graphs _____ 2. What is the main advantage of automatic stabilizers over discretionary fiscal policy? A. Automatic stabilizers do not have the advantage B. Automatic stabilizers take effect very quickly, whereas discretionary policy can take a long time to implement. C. Automatic stabilizers cannot stabilize the economy D. None of the Above

______ 3. Refer to the graph shown below. Focus on the Keynesian Zone. What does the Keynesian Zone tell us about the economy? A. The economy is in recession B. The equilibrium level of real GDP is far below potential GDP, C. Cyclical unemployment is high. D. All of the above _____ 4. What impact would a decrease in the size of the labor force have on GDP and the price level according to the AD/AS model? A. A smaller labor force would be reflected in a rightward shift in AS, leading to a higher equilibrium level of GDP and higher price level B. A larger labor force would be reflected in a leftward shift in AS, leading to a lower equilibrium level of GDP and lower price level C. A smaller labor force would be reflected in a leftward shift in AS, leading to a lower equilibrium level of GDP and higher price level. D. None of the Above

_____ 5 . How would a decrease in energy prices affect the Phillips curve? A. This would Shift the Philips curve down toward the origin, meaning the economy would experience higher unemployment and a higher rate of inflation B. This would shift the Philips curve up, meaning the economy would experience lower unemployment and a higher rate of inflation C. The would shift the Philips curve left and up, meaning the economy would experience higher unemployment and a higher rate of inflation D. This would shift the Phillips curve down toward the origin, meaning the economy would experience lower unemployment and a lower rate of inflation. _____ 6 . Suppose the U.S. Congress passes significant immigration reform that makes it more difficult for foreigners to come to the United States to work. Use the AD/AS model to explain how this would affect the equilibrium level of GDP and the price level. A. potential GDP will occur and the supply will increase B. Equilibrium real GDP will increase and the price level will decrease C. Potential GDP will occur and supply will stay the same D. Equilibrium real GDP will decrease and the price level will increase. _____ 7. If inflation rises unexpectedly by 5%, would a state government that had recently borrowed money to pay for a new highway benefit or lose? A. The state government would lose because it would repay the loan at a higher rate B. Tax revenue for the state government would decrease because of interest rates C. The state government would benefit because it would repay the loan in less valuable dollars than it borrowed. D. None of the above

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______ 8. The graph above reflects a significant increase in world oil prices. What will the impact on aggregate supply most likely lead to? A. An Increase in economic growth B. An increase in input prices C. A decrease in the natural unemployment rate D. Less inflationary pressure _____ 9. Whose unemployment rates are commonly higher in the U.S. economy? A. Whites C. College Graduates B. The young D. None of the Above _____ 10. Which of the following would be classified in the M1 category of the money supply A. Savings deposits B. Money market deposits C. Demand deposits D. Certificates of deposit ____ 11. Calculate the unemployment rate with the following data: Unemployed: 10 million, US population: 200 million, employed: 90 million. A. 3% B. 5 % C. 8% D. 10% _____ 12. An insolvent firm has A. Equity that exceeds its assets C. Equity that exceeds its debts B. Debts that exceed its assets D. assets that exceed its debts

______ 13. The Solow model predicts that countries with similar _______ will eventually converge to similar levels of output. A. Human capital depreciation rates C. growth rates B. Institutions D. consumption preferences _____ 14. In many casinos, a person buys chips to use for gambling, the person can buy food and even pay for their hotel room. Do the chips in the gambling casino serve all three function of money? A. NO because it is not real currency B. YES, because a person can buy things with the chips C. YES, as long as the person stays within the walls of the casino D. No, because he cannot use them at the bank _____ 15. _____________ implies that pressure for price reaches across __________ markets, not just one A. Inflation; all C. Inflation; most B. Deflation; most D. deflation; all _____ 16. If markets throughout the global economy all have flexible and continually adjusting prices, then: A. All market-oriented economies will implement coordinated wage reductions. B. Each economy will always head for its natural rate of unemployment C. Each economy must shift in aggregate demand and create additional employment. D. All changes in prices and wages will create additional employment. _____ 17. Suppose that gifts were taxed at a rate of 10% for amounts up to $100,000 and 20% for anything over that amount. What type of tax would this be? A. Regressive Tax C. Say’s tax B. Progressive Tax D. neither… this is a sales tax _____ 18. If Keynes’ law applies during economic contractions and Say’s Law applies during economic expansion, how will the three goals of macroeconomics be affected? A. the short run nor the long run will be affected

B. Only the long run will affected during contraction C. trade-offs and connections may differ in the short run and the long run D. none of the above _____ 19. When governments run budget deficits, how do they make up the differences between tax revenue and spending? A. The government borrows funds by selling Treasury bonds, notes, and bills B. The government halts all sales of treasury bonds, notes and bills C. The government borrows funds by selling treasury bonds, notes, but not bills. D. The government borrows funds by selling treasury notes and bills, but never treasury notes. ______ 20. The term _____________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds. A. balance of payment B. reserve funds C. federal ratio D. Reserve ratio _____ 21. Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a __________________________ for minimizing their effects. A. Pricing strategy c. set of menu costs B. Macro-economic model d. policy prescription II. True / False : Read each statement and decide if the statement is True / False (write the word out) False 22. Markets always stay at equilibrium false 23. Your $5,000 line of credit on your Bank of America card is considered M2 false 24. Foreign aid is a large portion of federal spending.

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false 25. By world standards, the U.S. government controls a relatively large share of the U.S. economy. false 26. The iron that goes into the steel that goes into a refrigerator bought by a consumer is part of GDP III. Essay/ SAQ ( please write neatly) 27. Explain the difference between property rights and contractual rights. Why do they matter to economic growth? Property rights are the legal rights of an individual or firm on their own property whereas contractual rights are an agreement between the owner of the property and other people. Efficient use of rights creates economic growth. 28. How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level? An increase in the value of the stock market would make individuals feel wealthier and thus more confident about their economic situation. This would likely cause an increase in consumer confidence leading to an increase in consumer spending, shifting the AD curve to the right. 29. How do banks create money?

Banks create money when they lend the rest of the money depositors give them. This money can be used to purchase goods and services and can find its way back into the banking system as a deposit in another bank, which then can lend a fraction of it. 30. A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force. What’s the unemployment rate? What share of population is in the labor force? Sketch a pie chart that divides the adult population into these three groups. in this specific country the unemployment rate would be 9.1%, and the labor force participation rate would be 67.75%.

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