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, technology, and institutions, not by the price level.

Question 3

A country experiences a technological breakthrough that increases labor productivity. According to the production function, what is the likely effect on potential GDP?

Accepted Answer

Potential GDP will increase because the production function shifts upward.

Question 4

If the government runs a budget deficit, what is the most likely effect on the market for loanable funds, assuming all else equal?

Accepted Answer

The supply of loanable funds decreases, leading to a higher equilibrium interest rate.

Question 5

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 6

A bank has deposits of $$1,000,000 and a required reserve ratio of 10%. If the bank holds 120$$,000 in reserves, what are its excess reserves?

Accepted Answer

$20,000

Question 7

If the Federal Reserve wants to increase the money supply, which of the following actions should it take?

Accepted Answer

Buy government bonds in the open market

Question 8

Suppose the required reserve ratio is 20%. If a new deposit of $5,000 is made into a bank, what is the maximum possible increase in the money supply, assuming banks lend out all excess reserves?

Accepted Answer

$25,000

Question 9

According to the quantity theory of money, if the money supply grows by 10% and real GDP grows by 2%, what is the predicted inflation rate?

Accepted Answer

$$10\% - 2\% = 8\%$$

Question 10

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 11

If the Federal Reserve lowers the reserve requirement, what is the effect on the money multiplier and the money supply?

Accepted Answer

The money multiplier increases, leading to a larger money supply.

Question 12

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

Accepted Answer

An increase in government spending

Question 13

Suppose the government increases taxes and decreases government spending at the same time. What is the likely effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease

Question 14

If the central bank targets a lower interest rate, what is the likely effect on investment and aggregate demand?

Accepted Answer

Investment increases, causing aggregate demand to increase

Question 15

Which of the following is a key requirement for sustained long-term economic growth according to new growth theory?

Accepted Answer

Continuous technological progress driven by profit incentives

Question 16

A country has the following data: Private savings = $$500 billion, Public savings = -100 $$billion, and Investment = $400 billion. Is the savings-investment identity satisfied?

Accepted Answer

Yes, because $$500 + (-100) = 400$

Question 17

Which of the following best describes the difference between M1 and M2?

Accepted Answer

M2 includes all of M1 plus savings deposits and small time deposits.

Question 18

Suppose the economy is in a recession and the government enacts an expansionary fiscal policy. Which of the following is most likely to occur in the short run?

Accepted Answer

Real GDP increases and unemployment decreases

Question 19

If the Federal Reserve sells $10 million in government bonds to the public, what is the immediate effect on bank reserves and the money supply?

Accepted Answer

Bank reserves decrease and the money supply decreases

Question 20

Which of the following is a potential problem with using monetary policy to stabilize the economy?

Accepted Answer

There may be a lag between when a policy is implemented and when it affects the economy.

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

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