Q: Suppose the government increases its spending by $$\100$ billion, and the marginal propensity to consume (MPC) is 0.8$. Using the simple Keynesian multiplier, what is the total change in output ($$\Delta Y$)?

$$\Delta Y = \frac{1}{1 - 0.8} \times 100 = 500$$

Question 1

Which of the following best describes the primary focus of macroeconomics as introduced in this course?

Accepted Answer

The analysis of the overall performance and structure of the economy, including growth, business cycles, and policy.

Question 2

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

Accepted Answer

Output increases because $$A$$ represents technology, which raises productivity.

Question 3

Which of the following is NOT included in the calculation of Gross Domestic Product (GDP) using the expenditure approach?

Accepted Answer

Purchases of used goods

Question 4

If the unemployment rate is 6%, the labor force is 150 million, and the number of employed people is 141 million, what is the number of unemployed people?

Accepted Answer

$$9$$ million

Question 5

In the context of the IS-LM-FE model, what does the LM curve represent?

Accepted Answer

Combinations of output and interest rates where the money market is in equilibrium.

Question 6

Suppose the government increases its spending by $$\100$ billion, and the marginal propensity to consume (MPC) is 0.8$. Using the simple Keynesian multiplier, what is the total change in output ($$\Delta Y$)?

Accepted Answer

$$\Delta Y = \frac{1}{1 - 0.8} 	imes 100 = 500$$

Question 7

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

Accepted Answer

As the price level rises, the real value of money balances falls, leading to lower consumption and investment.

Question 8

If a country has a current account deficit, which of the following must be true?

Accepted Answer

The country is borrowing from the rest of the world to finance its spending.

Question 9

According to the Solow growth model, if a country increases its savings rate, what is the long-run effect on the level and growth rate of output per worker?

Accepted Answer

The level of output per worker increases, but the long-run growth rate of output per worker remains unchanged.

Question 10

Suppose the central bank increases the money supply. According to the classical dichotomy, what is the likely long-run effect on real output and the price level?

Accepted Answer

Real output remains unchanged and the price level increases.

Question 11

A country experiences a negative demand shock. According to Keynesian analysis, what is the most likely short-run effect on output and unemployment?

Accepted Answer

Output falls and unemployment rises.

Question 12

If the nominal interest rate is $$5\%$$ and the inflation rate is $$2\%$$, what is the real interest rate according to the Fisher equation?

Accepted Answer

$$3\%$$

Question 13

Which of the following policies would be most effective in reducing cyclical unemployment during a recession?

Accepted Answer

Increasing government spending on infrastructure projects.

Question 14

Suppose the government runs a persistent budget deficit. According to the intertemporal government budget constraint, what must eventually happen?

Accepted Answer

The government must eventually increase taxes or reduce spending to stabilize debt.

Question 15

If the exchange rate is defined as the number of foreign currency units per U.S. dollar, and the exchange rate rises, what happens to U.S. exports and imports, all else equal?

Accepted Answer

U.S. exports decrease and imports increase.

Question 16

Which of the following best describes the relationship between inflation and unemployment in the short run, as depicted by the Phillips Curve?

Accepted Answer

There is a trade-off: lower unemployment is associated with higher inflation.

Question 17

Suppose the money supply ($$M) is$$ $$\2$ trillion, the price level (P$) is 2$, and real output (Y$) is $$\$$4$$ trillion. According to the quantity theory of money ($$MV = PY$$), what is the velocity of money ($$V$$)?

Accepted Answer

$$V = \frac{PY}{M} = \frac{2 	imes 4}{2} = 4$$

Question 18

If the Federal Reserve wants to decrease the equilibrium interest rate in the short run, which of the following actions should it take?

Accepted Answer

Buy government securities in the open market.

Question 19

A country is experiencing both high inflation and high unemployment. Which term best describes this situation?

Accepted Answer

Stagflation

Question 20

Suppose the government increases taxes by $$\50$ billion, and the marginal propensity to consume (MPC) is 0.75$. What is the expected change in equilibrium output ($$\Delta Y$) using the tax multiplier?

Accepted Answer

$$\Delta Y = -\frac{MPC}{1 - MPC} 	imes 50 = -\frac{0.75}{0.25} 	imes 50 = -150$$

ECON 221: Macroeconomics in the World Economy – Course Syllabus and Structure

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