Macro Economics

FINAL EXAM

ANSWER ALL MULTIPLE CHOICE QUESTIONS

1. The index used to measure inflation is the
a. consumer price index.
b. producer price index.
c. wholesale price index.
d. GDP deflator.

2. The price index in year 2 is 110 and the price index in year 3 is 115. The rate of inflation between years 2 and 3 is
a. 1.04%.
b. 2.04%.
c. 4.17%.
d. 4.55%

3. The situation that occurs when the inflation rate falls is called
a. deflation
b. disinflation
c. stagflation
d. inflation

4. The cost of the market basket in October is $180 and the cost
of the market basket in November is $200. What is the price
index equal to in the base period (October)?
a. 20
b. 100
c. 111
d. 1.11

5. The cost of the market basket in October is $180 and the cost
of the market basket in November is $200. What is the price
index equal to in November?
a. 20
b. 100
c. 111
d. 1.11

6. Expansionary fiscal policy refers to
a. decreases in government spending.
b. cutting taxes.
c. increases in the money supply.
d. none of the above.

7. The intended goal of contractionary fiscal policy is
a. a decrease in the level of aggregate output (GDP).
b. an increase in interest rates.
c. an increase in the price level.
d. the equalization of the distribution of income

8. In 2014, the city of Miketown collected $150,000 in taxes and spent $350,000. In 2014, the city of Miketown had a
a. budget surplus of 83%.
b. budget surplus of $200,000.
c. budget deficit of $200,000.
d. budget deficit of $100,000.

9. Which of the following is a CORRECT sequence of events during an expansionary business cycle?
a. Unemployment rises, income falls, tax revenue rises, unemployment benefits fall, and the budget deficit falls.
b. Unemployment falls, income rises, tax revenue rises, unemployment benefits fall, and the budget deficit falls.
c. Unemployment rises, income rises, tax revenue rises, unemployment benefits rise, and the budget deficit rises.
d. Unemployment falls, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises.

10. The presence of automatic stabilizers means that the budget
deficit is ______ during an expansion and ______ during a
recession.
a. smaller; smaller
b. larger; larger
c. larger; smaller
d. smaller; larger

11. An example of a transfer payment is
a. Unemployment insurance benefits.
b. the added value of stock from the time it was bought to the time it was sold.
c. an interest payment on a government bond.
d. the salary paid to a member of the armed forces.

12. The N.Y. sales tax is an example of a(n) _________ tax.
a. regressive
b. progressive
c. proportional
d. excise

13. If the Federal income marginal tax rate is higher than the average tax rate, the average tax rate will
a. increase
b. decrease
c. stay the same regardless of the size of the marginal rate
d. none of the above

14. The broad definition of money supply is
a. M1.
b. M2.
c. M3.
d. M4.

15. The interest rate banks pay to borrow money from each other on short term or overnight loans is the
a. federal funds rate.
b. discount rate.
c. prime lending rate.
d. reserve rate.

16. When the Fed sells government securities (bonds), the money supply will ______ .
a. first increase and then decrease
b. first decrease and then increase
c. increase
d. decrease

17. In a period of high inflation, the Fed would most likely
a. decrease the discount rate.
b. ease (expand) monetary policy.
c. decrease the required reserve ratio.
d. tighten (contract) monetary policy.

18. Refer to the income tax below. Sally is filing as single and her taxable
income is $100,000 per year. What happened to her average tax rate from
2012 to 2013?
a. It increased
b. It stayed the same
c. It decreased
d. We don’t have enough information to answer the question

2012 Tax rates Taxable Income Ranges 2013 Tax rates Taxable Income Ranges
in $ in $
15% 0-28,000 10% 0-10,000
25% 28,000-60,000 15% 10,000-30,000
31% 60,000-140,000 27% 30,000-80,000
36% 140,000-300,000 33% 80,000-150,000
40% over 300,000 38% 150,000-320,000
41% over 320,000

19. Refer to the tax system table below. Which tax system/country represents a
lump-sum tax?
a. None of the above
b. Country A
c. Country B
d. Country C

Tax Systems Country A Country B Country C
Tax rate Tax rate Tax rate
Income in $
0-50,000 30% 25% 20%
50,000-100,000 25% 25% 25%
over 100,000 20% 25% 30%

20. The best instrument for controlling changes in the money supply is:
a. open market operations
b. moral suasion
c. the required reserve ratio
d. the discount rate