PS-2 Multiple Choice - Intermediate Macro

Directions¶

There are 20 MC questions, and each question is worth 0.5 course point (for 10 out the total 45 points for this problem set).
Save the Bubble Sheet.
Type/write in your name(s).
You may work in a group of 3 or less. Do not collude with other groups. Do not “divide and conquer” the questions.
Do not use GenAI; this is exam practice.
Fill bubbles in with PDF viewer (or print and fill by hand).
Upload to Gradescape by Tuesday, Oct 14, 9am.

Gradescope Reminders

Only submit one assignment per group (of 3 members or less).
Add all group members to the one submission.

Ch.3 (Goods Market)¶

Q1¶

Which of the following is an endogenous variable in the goods market model?

A) net taxes ( $T$ )
B) disposable income ( $Y_D$ )
C) government spending ( $G$ )
D) autonomous consumption ( $c_0$ )
E) none of the above

Q2¶

The marginal propensity to consume represents

A) the level of consumption that occurs if disposable income is zero.
B) the ratio of total consumption to disposable income.
C) total income minus total taxes.
D) the change in output caused by a one-unit change in autonomous demand.
E) the change in consumption caused by a one-unit change in disposable income.

Q3¶

When the goods market is in equilibrium,

A) private saving equals investment.
B) public saving equals investment.
C) the federal budget is balanced.
D) income equals expenditure.
E) consumption equals private saving.

Q4¶

Assume the consumption function is $C=250+0.50(Y-T)$ . Suppose government spending increases by 100. If investment and net taxes are exogenous, the goods market predicts that equilibrium output increases by

A) 200.
B) 400.
C) 800.
D) 1,000.
E) 2,000.

Q5¶

Based on our understanding of the goods market model, we know that an increase in $c_1$ (where $C = c_0 + c_1Y_D$ ) will cause:

A) the $ZZ$ line to become steeper and a given change in autonomous consumption ( $c_0$ ) to have a smaller effect on output
B) the $ZZ$ line to become steeper and a given change in autonomous consumption ( $c_0$ ) to have a larger effect on output
C) the $ZZ$ line to become flatter and a given change in autonomous consumption ( $c_0$ ) to have a smaller effect on output
D) the $ZZ$ line to become flatter and a given change in autonomous consumption ( $c_0$ ) to have a larger effect on output
E) a move along the consumption function line

Q6¶

The goods market model predicts that an equal and simultaneous increase in $G$ and $T$ will cause in the short run:

A) a reduction in output
B) no change in output
C) an increase in output
D) an increase in investment
E) a decrease in investment

Q7¶

In the goods market, an exogenous decrease in investment will cause

A) a decrease in output.
B) an increase in output.
C) a decrease in consumption.
D) an increase in consumption.
E) both A and C

Ch. 4 (Money Market)¶

Q8¶

Which of the following is a flow variable?

A) income
B) money supply
C) financial wealth
D) all of the above
E) none of the above

Q9¶

In the money market, money demand shifts left when which of the following occurs?

A) an open market sale of bonds
B) the interest rate decreases
C) the interest rate increases
D) income decreases
E) income increases

Q10¶

In the money market, if the interest rate is above the equilibrium value, the

A) demand for money exceeds the supply of money.
B) supply of money exceeds the demand for money.
C) demand for money equals the supply.
D) demand for money shifts left.
E) supply of money shifts right.

Q11¶

In the money market, if the supply of money is greater than the demand for money at the current interest rate, then

A) production equals demand.
B) the money market is in equilibrium.
C) there is a surplus of money.
D) the bond price will decrease.
E) the bond price will increase.

Q12¶

Suppose a one-year discount bond offers to pay $1000 in one year and currently sells for $950. Given this information, we know that the interest rate on the bond is

A) 5.3%.
B) 9.5%.
C) 10%.
D) 90%.
E) 105%.

Q13¶

Which of the following occurs when a central bank pursues expansionary monetary policy?

A) the central bank purchases bonds and the interest rate increases.
B) the central bank purchases bonds and the interest rate decreases.
C) the central bank sells bonds and the interest rate increases.
D) the central bank sells bonds and the interest rate decreases.
E) none of the above

Q14¶

Suppose the central bank does not target the interest rate. In the money market, a reduction in income will cause in bond prices and in the interest rate.

A) an increase; an increase
B) a decrease; an increase
C) an increase; a decrease
D) a decrease; a decrease

Ch. 5 (IS-LM Model)¶

Q15¶

For each level of income, the LM curve summarizes the interest rate where

A) the goods market is in equilibrium.
B) money supply equals money demand.
C) there are no unplanned inventory changes.
D) all of the above
E) none of the above

Q16¶

An explanation for the slope of the IS curve is that as the interest rate increases, investment , and this shifts aggregate expenditure, thereby decreasing income.

A) increases; down
B) increases; up
C) decreases; up
D) decreases; down

Q17¶

In the IS-LM model, the IS curve shifts left when

A) money supply decreases.
B) government spending decreases.
C) the interest rate increases.
D) the interest rate decreases.
E) wealth increases.

Q18¶

In the IS-LM model, a decrease in the interest rate target will increase which of the following variables?

A) output
B) investment
C) consumption
D) all of the above
E) none of the above

Q19¶

In the IS-LM model, suppose there is a simultaneous fiscal expansion and monetary contraction, then

A) equilibrium output increases.
B) equilibrium output decreases.
C) the equilibrium interest rate will increase.
D) the equilibrium interest rate will decrease.
E) both equilibrium output and the equilibrium interest rate will increase.

Q20¶

Suppose the central bank purchases bonds and the government simultaneously increases net tax revenue. The IS-LM model predicts that equilibrium

A) output increases.
B) output decreases.
C) interest rate increases.
D) investment decreases.
E) output changes ambiguously.