Reference no: EM132368808

Section A: Answer all questions from this section.

1. The broadest measure of the aggregate price level is the
a. GDP deflator.
b. consumer price index.
c. producer price index.
d. gross domestic product

2. To calculate personal savings, you would need information on all of the following except:
a. personal disposable income.
b. personal consumption expenditures.
c. interest paid to business.
d. government expenditure.
e. personal transfer payments to foreigners.

3. In the base year, the relationship between nominal and real GDP is
a.uncertain.
b.one of equality.
c. real GDP is higher.
d. nominal GDP is higher

4. Gross domestic product includes
a. all intermediate and final goods and services produced.
b. the current production of final goods and services with a country's borders.
c. exchanges of assets.
d. the current production of final goods and services by a country's citizens.
e. All of the above

5. National income is defined as gross national product minus
a. depreciation and net taxes.
b. national income.
c. depreciation.
d. personal disposable income.

6. The supply-determined nature of output and employment is a crucial feature of
a. the Keynesian theory.
b. the classical system.
c. monetarism.
d. the rational expectations model.

7. Which of the following is not consistent with perfect competition?
a. Workers bargain individually for their wages.
b. Labor demand is determined by real wages and the marginal product of labor.
c. The marginal product of labor is diminishing.
d. Workers have no influence on their wages but accept them as given.
e. None of the above.

8. The supply of labor in the classical system is a function of the
a. marginal product of labor.
b. real wage.
c. the public's preference for leisure.
d. money wage.
e. b and c

9. For a given level of the money wage, an increase in the price level will cause
a. the supply of labor to rise.
b. quantity of labor demanded to rise.
c. price of leisure to rise.
d. quantity of labor demanded to rise.
e. both b and d.

10. In the classical macroeconomic model, a decrease in the real wage would cause
a. a decrease in the marginal product of labor and an increase in the quantity demanded for labor.
b. an increase in the marginal product of labor and an increase in the quantity demanded for labor.
c. no change in the quantity demanded for labor.
d. an increase in both the supply of and demand for labor.

11. If the demand for labor is plotted against the money wage, with the money wage on the vertical axis, then
a. an increase in the price level will cause the labor demand schedule to shift to the right.
b. an increase in the money wage will cause the labor demand schedule to shift to the left.
c. an increase in the money wage will cause the labor demand schedule to shift to the right.
d. the labor demand schedule will be upward sloping.

12. The classical economists believed that
a. labor supply is upward sloping because the income effect is greater than the substitution effect.
b. labor supply is upward sloping because the substitution effect is greater than the income effect.
c. labor supply is downward sloping because the income effect is greater than the substitution effect.
d. in equilibrium, the marginal product of labor must exceed the real wage.
f. both b and d.

13. Which of the following factors will not determine output and employment in the classical model?
a. Taxes that affect the incentive to work or hire labor The level of government spending
b. The quantity of capital
c. Preferences for leisure
d. None of the above

14, In the equilibrium version of the classical model, the velocity of money
a. depends on the real rate of interest.
b. depends on the level of employment.
c. is equal to the Cambridge k.
d. is stable in the short run.

15. The detinition of the velocity of money is
a. the money supply multiplied by prices divided by transactions.
b. the number of times a unit of currency changes hands over a period.
c. money supply times prices divided by transactions.
d. the fraction of total income held as money.

16. Assume there are 75 transactions a year in an economy with a money supply of $300. If the average value of each transaction is $20, then the velocity of money is
a. 1/2
b. 1
c. .2
d. 20

17. Which of the following is (are) correct? In the classical system, the suppliers of bonds were the
a. government which always sold bonds to finance a new project.
b. firms which financed all investment expenditures by selling bonds.
c. government which might sell bonds to finance spending in excess of tax revenues.
d. Both b and c.

18. If the money supply increases 10-percent, velocity decreases 5-percent, and the price level increases 6-percent, then the change in real GDP is
a. 1
b. 4
c. -1
d. 5

19. The difference between savings and investment is that
a. investment is purchasing stock, while savings is putting money in a bank.
b. investment is purchasing capital, savings is postponing consumption.
c. investment is purchasing assets, while consumption is purchasing goods.
d. investment increases output, while savings decreases output.

20. According to the quantity theory, inflation is ultimately controlled by
a. private firms who set prices.
b. the monetary authorities who control the money supply.
c. those who control output.
d. the price of oil.

Section B: Choose all questions in this section.

1. What is macroeconomics? Give any example of a typical question addressed by macroeconomic analysis.

2. Identify the TWO major differences in the tenets or beliefs of the Mercantilists and Classicalists.

3. What is real GDP and what is its major advantage over nominal GDP?

4. Briefly explain four reasons why GDP cannot accurately show the state of a country or an economy.

Section C: Choose ONE question from this section.

5(a) With the aid of correct and clear diagrams, use the Income-Leisure choice framework (Income and Substitution effects) to show why the labour supply curve is positively sloped.

(b) Through the use of illustrations, show the relationship between labour demand and the marginal product of labour.

6 (a) Use the Classical labour market to illustrate and explain how a change in the price affects market equilibrium. (You can assume either a price decrease or price increase).

(b) Using the derivation above, now show how the Classical Aggregate Supply Curve would develop.

7 (a) Illustrate and explain how interest rates are determined in the Classical system
(b) On a separate diagram, show the effect of an autonomous decline in investment in the market for loanable funds.

8 Using the two Classical approaches towards the Quantity theory of money, illustrate graphically and through equations that money supply growth is inflationary.