Question 1

Suppose the real GDP of a country grows at an annual rate of 2%. According to the Rule of 70, approximately how many years will it take for the country's real GDP to double?

Accepted Answer

About 35 years

Question 2

Which of the following best explains why the long-run aggregate supply (LRAS) curve is vertical?

Accepted Answer

Because in the long run, output is determined by resources and technology, not by the price level.

Question 3

A country increases its investment in education and research and development. According to new growth theory, what is the most likely long-term effect?

Accepted Answer

Sustained economic growth due to continuous technological progress.

Question 4

If the Federal Reserve wants to increase the money supply using open market operations, what action should it take?

Accepted Answer

Buy U.S. government bonds from the public.

Question 5

Suppose the reserve requirement is 10%. If a bank receives a new deposit of $1,000, what is the maximum possible increase in the money supply, assuming banks lend out all excess reserves?

Accepted Answer

$10,000

Question 6

Which of the following equations correctly represents the Quantity Theory of Money?

Accepted Answer

$$ M 	imes V = P 	imes Y $$

Question 7

If the government runs a budget deficit, what is the likely effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds decreases, raising the equilibrium interest rate.

Question 8

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 9

A negative supply shock, such as a sudden increase in oil prices, will most likely cause which of the following in the short run?

Accepted Answer

Decrease in real GDP and increase in the price level (stagflation)

Question 10

If the Federal Reserve lowers the discount rate, what is the expected effect on the money supply and interest rates?

Accepted Answer

Money supply increases and interest rates decrease.

Question 11

Suppose the government increases its spending by $100 million, and the marginal propensity to consume (MPC) is 0.8. What is the total change in aggregate demand, assuming no crowding out?

Accepted Answer

$$500$$ million

Question 12

Which of the following best describes 'crowding out' in the context of fiscal policy?

Accepted Answer

Government borrowing increases interest rates, reducing private investment.

Question 13

If the central bank wants to fight inflation using monetary policy, which of the following actions should it take?

Accepted Answer

Sell government bonds to decrease the money supply.

Question 14

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

Accepted Answer

An increase in government spending

Question 15

A bank has $10,000 in deposits and a required reserve ratio of 20%. What is the maximum amount the bank can lend out?

Accepted Answer

$8,000

Question 16

Which of the following best explains why the aggregate demand curve slopes downward?

Accepted Answer

A higher price level reduces the real value of money, decreasing consumption and investment.

Question 17

If the marginal propensity to consume (MPC) is 0.75, what is the value of the government spending multiplier?

Accepted Answer

$$4$$

Question 18

Which of the following is a component of M2 but NOT of M1?

Accepted Answer

Savings deposits

Question 19

Suppose the expected profitability of investment increases. What is the likely effect in the market for loanable funds?

Accepted Answer

The demand for loanable funds increases, raising the equilibrium interest rate.

Question 20

If the inflation rate is 3%, the real GDP growth rate is 2%, and the growth rate of the money supply is 6%, what is the implied growth rate of velocity according to the Quantity Theory of Money?

Accepted Answer

$$1\%$$

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

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