Question 1

Which of the following will raise consumption, according to macroeconomic theory?

Accepted Answer

an increase in expected future income

Question 2

Which of the following is considered a category of investment in macroeconomics?

Accepted Answer

Change in inventories

Question 3

If the exchange rate changes from $$2.00 = £1 to 2.01$$ = £1, what has happened?

Accepted Answer

the dollar has depreciated

Question 4

Sentry Ford spent $$20,000 on a new machine, 2$$,000 on a copy machine, and $$600,000 on Ford Motor company stock. Unsold cars and trucks were valued at 400$$,000 on January 1 and $900,000 on December 31. What is total investment spending for the year?

Accepted Answer

$522,000

Question 5

A Big Mac costs $4.79 in the US and 9.6 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, purchasing power parity predicts that:

Accepted Answer

the dollar is overvalued

Question 6

Which of the following is a reason why purchasing power parity may not hold?

Accepted Answer

Some goods and services produced in any country are not traded internationally.

Question 7

Suppose the economy is at an unemployment rate higher than the natural rate. What will occur due to the automatic mechanism adjusting the economy back to potential GDP?

Accepted Answer

The SRAS curve will shift down.

Question 8

If workers and firms raise their inflation expectations, what happens to the short-run Phillips curve?

Accepted Answer

the short-run Phillips curve will shift upward.

Question 9

The short-run aggregate supply curve will shift to the right if:

Accepted Answer

the economy experiences technological progress.

Question 10

Refer to the first image (Long-run and Short-run Phillips curve). The nonaccelerating inflation rate of unemployment (NAIRU) is associated with which point?

Accepted Answer

A

Question 11

A decrease in the interest rate in the U.S. relative to the rest of the world will:

Accepted Answer

Decrease the nominal exchange rate (E)

Question 12

Refer to the second image (AD/AS model). Suppose the economy is at point D. If the government takes no actions, where will the eventual long-run equilibrium be?

Accepted Answer

C

Question 13

In 2005, Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico, driving up prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should:

Accepted Answer

shift the short-run aggregate supply curve to the right.

Question 14

Why does the short-run aggregate supply curve shift down (to the right) in the long run, following a decrease in aggregate demand?

Accepted Answer

Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices.

Question 15

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

Accepted Answer

$2.81

Question 16

The 'interest rate effect' can be described as an increase in the price level that raises the interest rate and decreases:

Accepted Answer

C, I and NX.

Question 17

Refer to the third image (Phillips curve with points A, B, C, D, E). Suppose the economy is currently at point A. If the Federal Reserve raises interest rates, where would the economy end up in the short run?

Accepted Answer

point B

Question 18

If disposable income increases by $$100 million, and consumption increases by 90 $$million, what is the marginal propensity to consume (MPC)?

Accepted Answer

$$0.9$$

Question 19

If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective? Use the formula $$e = E 	imes \frac{P^*}{P}$$, where $$E is $$the nominal exchange rate, $$P^* is $$the foreign price level, and $$P is $$the domestic price level.

Accepted Answer

$$128$$

Question 20

If the GDP deflator in the United States is 114, and the GDP deflator in Ukraine is 142, which of the following exchange rates would the theory of purchasing power parity predict in the long run? (The Ukrainian currency is the hryvnia.) Use the formula $$E = \frac{P^*}{P}.$$

Accepted Answer

$$1.25$$ hryvnias per dollar

Macroeconomics Practice Midterm 2 – Step-by-Step Guidance

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