Question 1

Which of the following best explains why some countries experience sustained economic growth while others do not?

Accepted Answer

Because countries with higher rates of investment in physical and human capital, stable institutions, and technological innovation tend to grow faster.

Question 2

Suppose the production function for an economy is given by $$ Y = A K$$^{0.3}$$ L$$^{0.7}$$ $$, where $$Y is $$output, $$A is $$total factor productivity, $$K is $$capital, and $$L is $$labor. If $$A$$ increases by 10% while $$K$$ and $$L$$ remain constant, what happens to output?

Accepted Answer

Output increases by 10%.

Question 3

Which of the following is NOT a reason why the entire world is not equally rich?

Accepted Answer

Identical rates of capital accumulation everywhere.

Question 4

If the U.S. government implements policies that increase spending on education and infrastructure, which component of economic growth are they most directly targeting?

Accepted Answer

Enhancing human and physical capital.

Question 5

Which of the following would cause a rightward shift in the aggregate demand curve?

Accepted Answer

An increase in government spending.

Question 6

Suppose the short-run aggregate supply curve is upward sloping. If there is a negative supply shock (such as a sudden increase in oil prices), what is the likely effect on output and the price level in the short run?

Accepted Answer

Output falls and the price level rises.

Question 7

In the context of macroeconomic equilibrium, what happens if aggregate demand exceeds aggregate supply at the current price level?

Accepted Answer

There will be upward pressure on the price level.

Question 8

Which school of thought emphasizes the self-correcting nature of the economy and minimal government intervention?

Accepted Answer

Classical school.

Question 9

Which of the following is NOT a function of money?

Accepted Answer

Means of production.

Question 10

Which of the following is included in the M1 measure of money in the United States?

Accepted Answer

Currency in circulation.

Question 11

If a bank receives a new deposit of $1,000 and the required reserve ratio is 10%, what is the maximum amount of new money that can be created in the banking system as a result of this deposit?

Accepted Answer

$9,000

Question 12

Which of the following is NOT a function of the Federal Reserve System?

Accepted Answer

Setting fiscal policy.

Question 13

Which of the following best describes monetary policy?

Accepted Answer

Central bank actions to manage the money supply and interest rates.

Question 14

Suppose the Federal Reserve wants to decrease aggregate demand. Which of the following actions would it most likely take?

Accepted Answer

Sell government securities in the open market.

Question 15

During the 2007-2009 recession, which unconventional monetary policy did the Federal Reserve use to stimulate the economy?

Accepted Answer

Quantitative easing (large-scale asset purchases).

Question 16

If the money supply increases while velocity and real output remain constant, what happens to the price level according to the quantity theory of money ($$ M V = P Y $$)?

Accepted Answer

The price level increases.

Question 17

A country experiences high inflation and slow economic growth. Which policy mix is most likely to address both issues according to Keynesian theory?

Accepted Answer

Implement supply-side policies to increase productivity while using contractionary monetary policy to reduce inflation.

Question 18

If the Federal Reserve lowers the federal funds rate, what is the most likely short-run effect on investment and aggregate demand?

Accepted Answer

Investment increases and aggregate demand increases.

Question 19

Suppose the economy is in a recessionary gap. Which of the following policy actions would be most appropriate to restore full employment?

Accepted Answer

The central bank lowers interest rates.

Question 20

If banks hold excess reserves instead of lending them out, what is the effect on the money multiplier and the overall money supply?

Accepted Answer

The money multiplier decreases and the money supply grows more slowly.

Macroeconomics Exam Two Study Guide: Economic Growth, Aggregate Demand & Supply, Money, and Monetary Policy

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