Review Session

Econ202_Session 091_Midterm

Exam: Mid-term ECON, all Sections

Date: 14 November 2009
PLACE: BUILDING 10, Auditorium
Time: from 5:30 PM to 7:30 PM
Chapter to be covered: 5-10
Number of questions: 50

1. Chapter_5:
Main Focus: Definition of macroeconomics; some empirical facts about USA
business cycles
2. Chapter_6:
Main Focus: Calculation of GDP using various approach; concepts related to
business cycle; definition of macroeconomics; several macroeconomic definitions
such as transfer payments, capital and investment
3. Chapter_7:
Main Focus: Labor force; Unemployment; other labor force related calculations;
Types of Unemployment; discouraged worker; calculation of CPI; different
measures of economic growth.

4. Chapter_8:
Main Focus: Consumption and savings Function; determinants of consumption;
equilibrium in savings approach; investment multiplier;

5. Chapter_9:
Main Focus: definition of fiscal policy; equilibrium when government is added to
the economy; government spending multiplier;

6. Chapter_10:

Main Focus: definition of money; characteristics of money different forms of

exchange; Asset and liability of the banking system; how does Fed control the money
supply?

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 Sample Questions
1)In the circular flow diagram, the different payments made by firms to
households include
A)transfer payments and dividends.
B)interest and taxes.
C)taxes and transfer payments.
D)wages and profits.

2)Which of the following is an example of a final good or service?

A)coffee beans Starbucks purchases to make coffee
B)wheat a bakery purchases to make bread
C)lumber purchased by a construction company to used in building houses
D)a computer purchased by Federal Express to track shipments

3)Net investment equals

A)gross investment minus final sales.
B)GDP minus final sales.
C)depreciation plus GDP.
D)gross investment minus depreciation.

4)Bob is unemployed if he
A)has looked for a job for two months and then quit looking.
B)is temporarily laid off.
C)is not looking for a job.
D)A and C are correct

5)Cheryl graduated from college a month ago and is now without work. She
accepted a job that will start next month. Today, Cheryl is
A)in the labor force.
B) a discouraged worker.
C)not in the labor force.
D) employed.

6)Discouraged workers are

A)considered cyclically unemployed.
B)considered frictionally unemployed.
C)considered structurally unemployed.
D)not considered as part of the labor force.

7)When 100 people who were previously looking for jobs stop looking for jobs,
the
A)unemployment rate does not change.
B)size of the labor force decreases.
C)unemployment rate increases.
D)labor-force participation rate does not change.

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 Refer to the information provided in Table 7.4 below to answer the questions that
follow.

Table 7.4

8)Refer to Table 7.4. The bundle price for the goods in period 2006 is
A)$41.
B) $57.50.
C) $50.50.
D) $100.

9) Refer to Table 7.4. If 2006 is the base year, the price index in 2007 is
A)81.9.
B) 76.8.
C) 119.1.
D) 123.2.

10)When an individual quits his/her job and decides to stay at home for a while,
the labor-force participation rate
A)may increase or decrease, depending on the length of time he/she stays at
home.
B)decreases.
C)increases.
D)stays the same.

11)When the Fed slows the rate of growth of the money supply to slow down the
economy, the unemployment type that will be directly affected is the
A)frictional unemployment.
B)natural rate of unemployment.
C)structural unemployment.
D)cyclical unemployment.

12)When an individual is not working and is not looking for a job because he/she
lacks any marketable job skills, he/she is
A)cyclically unemployed.
B) frictionally unemployed.
C)structurally unemployed.
D) none of the above

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13)A price index is
A)a decrease in the overall price level.
B)a measurement showing how the average price of a bundle of goods changes
over time.
C)a sustained increase in the overall price level.
D)a measurement showing the cost of a bundle of goods at a point in time.

14)Which of the following is not considered capital?

A)a factory a company builds to produce other output
B)the knowledge an individual acquires through education
C)a tractor produced by John Deere
D)10,000 U.S. dollars

15)If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises
by $________ and his saving rises by $________. 15) ______
A)2,500; 200
B) 2,500; 20
C)2,000; 500
D) 500; 100

16)Higher interest rates are likely to

A)decrease both consumer spending and consumer saving.
B)increase consumer spending and decrease consumer saving.
C)have no effect on consumer spending or saving.
D)decrease consumer spending and increase consumer saving.

Refer to the information provided in Table 8.2 below to answer the questions that
follow.

Table 8.2

17)Refer to Table 8.2. The equation for the aggregate saving function is
A)S = -100 + .1Y. B) S = -100 + .15Y.
C)S = -150 + .2Y. D) S = -150 + .85Y.

18)Refer to Table 8.2. Society's MPC is

A)0.9.
B) 0.1.
C) 0.8.
D) 0.2.

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Refer to the information provided in Figure 8.3 below to answer the
questions that follow.

Figure 8.3

19)Refer to Figure 8.3. The equation for the aggregate consumption function is
A)C = 80 + .6Y.
B) C = 60 + .4Y.
C)C = 140 + .5Y.
D) C = 60 + .7Y.

20)Which of the following is NOT considered investment?

A)The construction of a new factory
B)The increase in planned inventories
C)The acquisition of capital goods
D)The purchase of government bonds

21)In macroeconomics, equilibrium is defined as that point at which

A)saving equals consumption.
B)planned aggregate expenditure equals consumption.
C)planned aggregate expenditure equals aggregate output.
D)aggregate output equals consumption minus investment.

22)Assume there is no government or foreign sector. If the multiplier is 4, a $20

billion increase in investment will cause aggregate output to increase by
A)$80 billion.
B) $5 billion.
C)$40 billion.
D) $20 billion.

23)Fiscal policy refers to

A)the spending and taxing policies used by the government to influence the
economy.
B)the techniques used by a business firm to reduce its tax liability.
C)the government's ability to regulate a firm's behavior in the financial markets.
D)the behavior of the nation's central bank, the Federal Reserve, regarding the
nation's money supply.

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 24)The aggregate consumption function is C = 100 + .8Yd. If income is $600 and
net taxes are zero, consumption equals
A)460.
B) 360.
C) 580.
D) zero.

Refer to the information provided in Table 9.2 below to answer the questions that
follow.

Table 9.2

25)Refer to Table 9.2. At an output level of $1,500 billion, the level of aggregate
expenditure is ________ billion.
A)$1,300
B) $1,400
C) $1,600
D) $1,500

26)Refer to Table 9.2. At an output level of $1,500 billion, there is an unplanned

inventory
A)change of $0.
B) increase of $150 billion.
C)decrease of $200 billion.
D) increase of $100 billion.

Table 9.3
All Numbers are in $ Million

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 27)Refer to Table 9.3. Assuming constant MPC, at income of $1,000 million,
consumption is $________ million, and at income of $1,300 million, consumption is
$________ million.
A)680; 920
B) 640; 900
C) 720; 960
D) 600; 860

28)The development of money as a medium of exchange has facilitated the

expansion of trade because
A)money eliminates the "double coincidence of wants" problem.
B)no other mediums of exchange are available.
C)holding money increases people's wealth.
D)holding money increases people's income.

29)Veronica received a federal income tax rebate check of $600 in May 2008.
Veronica put this money in a saving account so that she could spend it when she went on
vacation in July 2008. This is an example of money serving as a(n)
A)store of value.
B) unit of account.
C)investment good.
D) medium of exchange.

30)The liquidity property of money is the property that makes money

A)a good store of value and a good standard of deferred payment.
B)a good medium of exchange and a good store of value.
C)a good store of value and a good unit of account.
D)a good medium of exchange and a good unit of account.

31)Money that a government has required to be accepted in settlement of debts is

A)commodity money.
B) barter money.
C)fiat money.
D) legal tender.

32)Which of the following is an example of fiat money?

A)an ounce of gold
B)a government bond
C)a U.S. one-hundred dollar bill
D)cigarettes

33)Napoli National Bank has liabilities of $3 million and net worth of $200,000.
Napoli National Bank's assets are
A)$3.2 million. B) $200,000.

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 C)$2.8 million. D) $3 million

34)Which of the following is considered a liability to a bank?

A)time deposits
B)the bank's buildings and equipment
C)the bank's loans
D)reserves

35)A loan made by a bank is considered ________ of that bank.

A)net worth
B) capital
C) an asset
D) a liability

37) The Federal Open Market Committee (FOMC) directs the Open Market Desk
to 37) ______
A)determine the federal funds rate.
B)buy or sell government securities.
C)determine the required reserve ratio.
D)determine the discount rate.

38)Which of the following is NOT a tool available to the Fed to change the
supply of money? 38) ______
A)the money multiplier B) the discount rate
C)the required reserve ratio D) open market operations

39)Which of the following represents an action by the Federal Reserve that is

designed to increase the money supply? 39) ______
A)buying government securities in the open market
B)an increase in the discount rate
C)a decrease in federal spending
D)an increase in the required reserve ratio

Refer to the information provided in Table 10.3 below to answer the questions
that follow.

Table 10.3

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 41)Refer to Table 10.3. People's Bank excess reserves are $________.
A)200,000
B) 100,000
C) 400,000
D) 300,000

42)Refer to Table 10.3. Total loans of People's Bank equal $________.

A)500,000
B) 400,000
C) 100,000
D) 800,000

Refer to the information provided in Table 9.3 below to answer the questions that
follow.

Table 9.3
All Numbers are in $ Million

43)Refer to Table 9.3. Assuming constant MPC, at income of $1,200 million,

saving is $________ million, at income of $1,600 million, saving is $________ million.
A)170; 250
B) 150; 230
C) 160; 240
D) 180; 260

44)Refer to Table 9.3. The MPC in this economy is ________ and the MPS is
________.
A)0.8; 0.2
B) 0.7; 0.5
C) 0.9; 0.1

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 D) 0.5; 0.5

45)Refer to Table 9.3. The equilibrium level of aggregate output is $________

million.
A)1,200
B) 1,500
C) 1,400
D) 1,300

46)Refer to Table 9.3. Which of the following variables is NOT considered

autonomous?
A)Planned government spending
B)Planned investment
C)Saving
D)none of the above

47)Refer to Table 9.3. Suppose the economy is in equilibrium and the government
increases spending by $50 million, the new equilibrium output is $________
million
A)1,350
B) 1,650
C) 1,750
D) 1,450

48)Refer to Table 9.3. Suppose the economy is in equilibrium and the government
raises taxes from $200 million to $220 million, equilibrium output will ________
by $________ million.
A)decrease; 80
B) decrease; 20
C)increase; 20
D) increase; 80

Refer to the information provided in Table 9.2 below to answer the questions that
follow.

Table 9.2

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 49)Refer to Table 9.2. At an output level of $2,500, the level of aggregate
expenditure is ________ billion.
A)$1,500
B) $2,200
C) $2,300
D) $2,000

50)Refer to Table 9.2. At an output level of $2,500, there is an unplanned

inventory
A)increase of $300 billion.
B) increase of $200 billion.
C)change of $0.
D) decrease of $200 billion.

51)Refer to Table 9.2. The equilibrium level of output is ________ billion. A)

$2,000
B) $1000
C) $1,500
D) $2,500

52)Refer to Table 9.2. At an output level of $1,500, disposable income

A)is $1,200.
B)is $1,000.
C)is $1,400.
D)cannot be determined from this information.

53)Refer to Table 9.2. At an output level of $2,500, the level for saving
A)is $400.
B)is $300.
C)is $500.
D)cannot be determined from this information.

54)Refer to Table 9.2 At the equilibrium level of income, leakages equal

________ billion.
A)$300
B) $200
C) $500

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 D) $0

55)Refer to Table 9.2. At an output level of $2,500, there is a tendency for output
A)to either increase or decrease.
B) to remain constant.
C)to increase.
D) to fall.

Refer to the information provided in Table 8.2 below to answer the questions that
follow.

Table 8.2

56)Refer to Table 8.2. Society's MPS is

A)0.1.
B) 0.3.
C) 0.9.
D) 0.2.

57)Refer to Table 8.2. Assuming society's MPC is constant, at an aggregate

income level of $900, aggregate consumption would be
A)$1,200.
B) $1,750.
C) $910.
D) $665.

Answer Key
1)D

2)D

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3)D

4)B

5)A

6)D

7)B

8)A

9)D

10)B

11)D

12)D

13)B

14)D

15)C

16)D

17)A

18)A

19)D

20)D

21)C

22)A

23)A

24)C

25)B

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26)D

27)A

28)A

29)A

30)B

31)D

32)C

33)A

34)A

35)C

36)A

37)B

38)A

39)A

40)B

41)A

42)A

43)C

44)A

45)C

46)C

47)B

48)A

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49)B

50)A

51)B

52)C

53)A

54)B

55)D

56)A

57)C

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