There is a surplus (excess supply) in a market for a product when:

Final Exam


25Multiple Choice (6 points for each)


1.      There is a surplus (excess supply) in a market for a product when:



A)    the increase in supply is greater than the increase in demand.


B)    the increase in demand is greater than the increase in supply.


C)    quantity demanded is less than quantity supplied.


D)    quantity demanded is greater than quantity supplied.


2.      GDP in an economy is $12185 billion.  Consumer expenditures are $8,735 billion, government purchases are $2,050 billion, and gross investment is $1,500 billion.  Net exports are:



A)    + $50 billion.


B)    – $45 billion.


C)    – $100 billion.


D)    – $130 billion.




3.      GDP excludes: 
A) the market value of unpaid work in the home.
B) the production of services.
C) the production of nondurable goods.
D) positive changes in inventories.



Real GDP was $10,950 billion in Year 1 and $11,270 billion in Year 2.  What was the approximate rate of economic growth from Year 1 to Year 2?



1.6 percent



2.9 percent



3.5 percent



4.1 percent




In the recession (contraction) phase of a business cycle:



the inflation rate decreases, but productive capacity increases.



the inflation rate and productive capacity decrease.           



employment and output decrease.



employment and output increase.




A nation has a population of 320 million people.  Of these, 90 million are retired, in the military, in institutions, or under 16 years old.  There are 210 million who are employed and 20 million who are unemployed.  What is the unemployment rate?



5.2  percent



6.0 percent



7.5 percent



8.7 percent


                  7.         “Economic growth” has occurred if the

      A)  inflation rate between this year and last year is zero or less.

      B)  GDP this year exceeds the Real GDP this year.

      C)  unemployment rate this year is above the natural rate of unemployment.

      D)  Real GDP or per-capita Real GDP this year exceeds those of last year.



8. If the marginal cost of producing an iPad is constant at $65, then Apple should produce this item

A) only if the marginal benefit it receives is greater than $65 plus an acceptable profit margin.

B) as long as the marginal benefit it receives is just equal to or greater than $65.

C) as long as its marginal cost does not rise.

D) until the marginal benefit it receives reaches zero.


9. Suppose that homemakers are included as employed in the labor force statistics, rather thanbeing counted as out of the labor force. This would

A) increase the measured unemployment rate.

B) increase the measured labor force participation rate.

C) decrease the number of persons in the labor force.

D) decrease the number of persons in the working-age population.


                 10. Suppose consumption increases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.

A) increases; leftward

B) decreases; leftward

C) increases; rightward

D) decreases; rightward




11. Short-run equilibrium exists

A) where the AD curve intersects the short-run aggregate supply (SRAS) curve.

B) where the AD curve intersects the long-run aggregate supply (LRAS) curve.

C) on the AD curve only.

D) on the SRAS curve only.


12. Here is a consumption function: C = C0 + MPC(Yd). If MPC is 0.75, then we know that

A) as Yd rises by $1, Co rises by $0.75.

B) as Yd rises by $1, C rises by $0.75.

C) Yd rises by $0.75.

D) as C0 rises by $0.75, Yd rises by $1.


13.  Which of the following will decrease consumer expenditures?


A)    a decrease in interest rates

B)    a general increase in housing prices

C)    an increase in expected future income

D)    an increase in the price level


14.  If inflation in the United States is lower than inflation in other countries, what will be the effect on net exports for the United States?


A)    Net exports will rise as U.S. exports increase.

B)    Net exports will rise as U.S. imports decrease.

C)    Net exports will decrease as U.S. exports decrease.

D)    Net exports will decrease as U.S. imports decrease.


15.  If the economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP?


A)    an decrease in wealth

B)    an decrease in interest rate

C)    a decrease in business confidence

D)    an increase in tax


16.  If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?


A)    This will move the economy up along a stationary aggregate demand curve.

B)    This will move the economy down along a stationary aggregate demand curve.

C)    This will shift the aggregate demand curve to the left.

D)    This will shift the aggregate demand curve to the right.


17.   Suppose you withdraw $800 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 20 percent, checking account deposits in the banking system as a whole could drop up to a maximum of


A)    $500.

B)    $1,600.

C)    $4,000.

D)    $8,000.


18.Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.


A)    higher; higher

B)    higher; lower

C)    lower; higher

D)    lower; lower


19.From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then Congress and the president would most likely


A)    increase the required reserve ratio and decrease government spending.

B)    decrease government spending.

C)    decrease oil prices.

D)    decrease taxes.


20. How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?


A)    The demand for dollars falls, and the supply of dollars falls.

B)    The demand for dollars rises, and the supply of dollars rises.

C)    The demand for dollars rises, and the supply of dollars falls.

D)    The demand for dollars falls, and the supply of dollars rises.



21. Why did the United States abandon the gold standard in the 1930s?

A)    The government wanted to rapidly expand the money supply in response to the Great Depression.

B)    The government wanted to move away from a floating exchange rate system to a fixed exchange rate system.

C)    The Treasury Department in the United States found it was cheaper to print paper money instead of gold coins.

D)    New sources of gold were discovered, so the price of gold plummeted, dramatically reducing the value of the dollar.


22. If a country has a fixed exchange rate,

A)    the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency.

B)    central banks have more control over real GDP in the economy.

C)    central banks must buy and sell their holdings of currencies to maintain a given exchange rate.

D) the exchange rate is allowed to fluctuate in response to changes in the supply and demand for currency.


23. Youare traveling in Ireland and are thinking about buying a new digital camera. Youhave decided youwould be willing to pay $125 for a new camera, but cameras in Ireland are all priced in euros. If the camera youʹre looking at costs 115 euros, under which of the following exchange rates would you be willing to purchase the camera? (Assume no taxes or duties are associated with the purchase.)


A)    0.56 euros per dollar

B)    0.89 euros per dollar

C)    0.92 euros per dollar

D)    You would purchase the new camera at any of the above exchange rates.


24. Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession. If the economy had been at potential GDP, it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower. Using these estimates, the cyclically adjusted budget


A)    deficit was $210 billion.

B)    deficit was $110 billion.

C)    surplus was $10 billion.

D)    surplus was $110 billion.


25. Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion. To move the economy back to potential GDP, Congress should


A)    lower taxes by an amount less than $500 billion.

B)    raise government purchases by $500 billion.

C)    raise government purchases by more than $500 billion.

D)    lower taxes by $500 billion.

E)     lower government purchases by $500 billion.



9Short Answer/Problems/Essays

1. (15 points) The following table shows the quantities of corn supplied and demanded at different prices.

Price per Ton

Quantity Supplied

Quantity Demanded













What are the equilibrium price and quantity of corn?  At a price of $80, is there an excess demand or supply? By how many?


2.      (20 points) The table below uses data for the year 2011 provided by the Bureau of Labor Statistics and adjusted to be comparable to U.S. data.  All values are in thousands.  Fill in the blank entries in the table.


































3.      (20 points) Compute how much each of the following items is worth in terms of 2012 dollars using 178 as the price index for 2012.

A)    In 1946, the CPI was 16.7 and the price of a movie ticket was $0.30.

B)    In 1952, the CPI was 25.1 and an engineer earned $40.00 a day.

C)    In 1963, the CPI was 49.4 and a gallon of gas cost $0.45.


4.      (20 points) Assume the following open economy for Questions 1a, 1b, 1c and 1d below:

C = 200 + 0.75(Y – 100)

I = 130

G = 200

X =95

M = 115


A)    Determine (solve for) the equilibrium level of income or GDP (Y).

B)    Determine the impact on income of a 50 increase in government spending from 200 to 250.

C)    If the government seeks to increase income by 40, how much should it raise government spending?



5.      (15 points) Explain how the economy moves back to full employment from recession. Be sure to detail what happens to short-run aggregate supply, unemployment, equilibrium GDP and the price level.




6.      (15 points) Workers at a local mining company are paid $25.60 per hour, and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation. Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.



7.      (15 points) If net taxes rise by $150 billion would you expect household saving to fall by $150 billion, by more than $150 billion, or by less than $150 billion?


8.      (15 points) The reasons why someone cannot get a job are similar to the reasons why someone cannot get adate. Using the ideas of frictionally unemployed, structurally unemployed, and cyclicallyunemployed, describe and explain how a student at your university might be frictionallyundated, structurally undated, and cyclically undated.



9.      (15 points) A central concept in macroeconomics is the idea of the natural rate of unemployment. Why doesit make sense to define full employment to occur when the unemployment rate equals thenatural rate of unemployment, instead of when the unemployment rate equals zero? Elaborateand explain carefully.


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