Q: A country has a real GDP per capita of $$\10$$,000$$ and grows at an average annual rate of 2$$\%$. According to the Rule of 70, approximately how many years will it take for the country's real GDP per capita to double?

$$35$$ years$$\ (\text{since } 70/2 = 35)$$

Question 1

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

Accepted Answer

Access to physical capital, human capital, and technological progress are key determinants of economic growth.

Question 2

Suppose the aggregate demand curve shifts to the right. Which of the following is the most likely short-run effect on the economy?

Accepted Answer

The price level rises and real GDP increases.

Question 3

Which of the following equations correctly represents the quantity theory of money?

Accepted Answer

$$M 	imes V = P 	imes Y$$

Question 4

A country has a real GDP per capita of $$\10$$,000$$ and grows at an average annual rate of 2$$\%$. According to the Rule of 70, approximately how many years will it take for the country's real GDP per capita to double?

Accepted Answer

$$35$$ years$$\ (	ext{since } 70/2 = 35)$$

Question 5

Which of the following is NOT a function of money?

Accepted Answer

Source of economic growth

Question 6

If the required reserve ratio is $$10\%$$ and a bank receives a new deposit of $$\1$$,000$, what is the maximum amount of new loans the bank can make?

Accepted Answer

$$\900$

Question 7

Which of the following best describes the role of the Federal Reserve during the 2007-2009 recession?

Accepted Answer

The Fed implemented unconventional policies such as quantitative easing to stabilize the economy.

Question 8

Which of the following policies is most likely to promote long-term economic growth in a developing country?

Accepted Answer

Investing in education and infrastructure.

Question 9

If the money supply increases while velocity and real output remain constant, what is the expected effect on the price level according to the quantity theory of money?

Accepted Answer

The price level will increase.

Question 10

Which of the following best explains why the aggregate supply curve is upward sloping in the short run?

Accepted Answer

Firms face menu costs and wage contracts that prevent immediate price adjustments.

Question 11

Suppose the Federal Reserve wants to decrease the money supply. Which of the following actions would achieve this goal?

Accepted Answer

Selling government securities in the open market.

Question 12

Which of the following is included in M2 but not in M1?

Accepted Answer

Savings deposits

Question 13

A country experiences high inflation and stagnant economic growth. Which monetary policy tool is most appropriate for the central bank to use?

Accepted Answer

Decrease the money supply to reduce inflation.

Question 14

Which of the following best describes the classical school of thought regarding economic fluctuations?

Accepted Answer

Markets are self-correcting and government intervention is unnecessary.

Question 15

If the marginal propensity to consume (MPC) is $$0.8$$, what is the value of the simple spending multiplier?

Accepted Answer

$$5$$

Question 16

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

Accepted Answer

A decrease in government spending.

Question 17

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

Accepted Answer

The money multiplier decreases and the money supply contracts.

Question 18

Which of the following is a reason why the whole world is not rich, according to economic growth theory?

Accepted Answer

Differences in institutions, education, and political stability affect growth rates.

Question 19

Suppose the economy is in long-run equilibrium. If there is a sudden increase in oil prices, what is the likely short-run effect?

Accepted Answer

Aggregate supply shifts left, decreasing output and increasing prices.

Question 20

Which of the following best describes how banks create money?

Accepted Answer

By making loans from excess reserves, which increases checkable deposits.

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

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