Choose the right answer

1) Aggregation is the procees of

a) Calculating real GDP based on nominal GDP and the price index.
b) Summing individual economic variables to obtain economywide totals.
c) Forecasting the componets of GDP.
d) Predicting when recessions will occur.

2) Keynes assumed that wages and price were slow to adjust in order to explain
a) Persistently high unemployment.
b) High inflation.
c) The high level of interest rates.
d) Why inflation fell in recessions.

3) To what extent are homemaking and child-rearing accounted for in the govermment
a) Not at all
b) Only to the extent that they are provided for pay
c) Only to the extent that taxes are paid on them
d) All homemaking and child-rearing are accounted for

4) İf nominal GDp for 2009 is $6400 billion and real GDP for 2010 is $6720 billion and the
growth rate of real GDP is
a) 0%
b) 0.5%
c) 5%
d) 50%

5) The consumer price index (CPI) was 180 for 2009 when using 1995 as the ba... suppose
we switch and use 2009 as the base year (2009 = 100). What is the CPI base year?
a) 18.0
b) 55.6
c) 80.0
d) 111.2

6) An increase in the number of workers hired by a firm could result from

a) A decrease in the marginal product of labor.
b) A decrease in the marginal revenue product of labor.
c) An icnrease in the real wage.
d) A decrease in the real wage.

7) The labor force participation rate is the percentage of the adult population;
 a) Employed.
b) Willing to work but unable to find jobs.
c) Unemployed.
d) Working or actively looking for work.

8) Saving is a ________ variable, and weath is a _______ variable.

a) Stock; flow
b) Flow; stock
c) Stock;stock
d) Flow;flow

9) How many people are employed if the labor force participarion........ unemployed, and
there are 30 million people not in the labor force?
a) 54 million
b) 48 million
c) 42 million
d) 30 million

10) İn economics, money refers to

a) İncome
b) Wealth
c) Assets used and accepted as payment.
d) Currency,

11) Last year, linus earned a salray of $25,000 and he spent $24,000, thus saving $1,000 the
year, he received a bonus of $1,000 and he spent $500 of it, seving the other $500, what
marginal propensity to consume ?
a) .96
b) .04
c) .50
d) .02

12) What’s the most common way for a central bank to reduce the money supply?
a) Colect higer taxes
b) Sell bonds to the public
c) Buy bonds from the government
d) Buy bonds from the public

13) Suppose velovity is 3, real output is 9000, and the price level is 1.5. what is the demand in
this economy ?
a) 2000
b) 3000
c) 6000
d) 30,000
14) Suppose real money demand is 1000, real output is 6000, and the price level..... of
velocity in this economy ?
a) 2
b) 3
c) 6
d) 12

15) When a government prints money to finance its expenditures, it is likely

a) Unemployment.
b) İnflation.
c) Deflation.
d) Reductions in the use of barter.

16) The IS curve

a) İs horizontal.
b) İs vertical
c) Slopes downward
d) Slope upward

17) Which of the following change shifts the SRAS curve up ?

a) An icnrease in the labor force
b) An icnrease in frims’ costs
c) A decrease in government purchases
d) And icnrease in the money supply

18) İn the Keynesian model, which curve is vertical?

a) LRAS
b) SRAS
c) AD
d) NS

19) An increase in the expected rate of inflation would

a) Shift the Phillips curve upward.
b) Shift the Phillips curve downward.
c) Shift the long-run Phillips curve to the right.
d) Shift the long-run Phillips curve to the left.

20) Shoe leather costs are

a) the costs in time and effort incurred by peoople and firms who are tying to
minimiz the cash because of inflation.
b) The cost of changing prices, such as printing and mailing catalogues.
c) The cost of the redistribution of wealth between lenders and borrowers.
d) The cost associated with the confusion of prices as signals.
21) The value of real GDP in th current year equals
a) The value of current-year output in prices of the base year.
b) The value of current-year output in prices of the current year.
c) The calue of base-year output in prices of the base year.
d) The calue of base-year output in prices of the current year.

22) Which of the following will cause the aggregate supply curve to shift down ?
a) An increase in firms’ markup over labor costs
b) An increase in the expected price level
c) An increase in unemployment benefits
d) All of the above
e) None of the above

23) Fractional reseve banking is the system that

a) Allows banks not to insure their deposits
b) Allows banks not to join the Federal Reserve System
c) Limits banks’ activites from crossing state lines.
d) Allows banks to keep smaller reserves than their deposits.

24) Suppose the ecoenomy is operating on the LM curve but not on the IS curve we know that
a) The goods market is in equilibrium and the money market is not in euilibrium
b) The money market and bond markets are in equilibrium and the goods….
c) The money market and goods market are in equilibrium and the bond…..
d) The money, bond and goods markets are all in equilibrium
e) Neither the money, bond, nor goods markets are in equilibrium

25) An increase in the aggregate price level, P, will most likely have which….
a) A rightward shift in the IS curve
b) A leftward shift in the IS curve
c) An upward shift in the LM curve
d) A downward shift in the LM curve

26) ?

27) Which of the following events will cause a reduction in equilibrium output ?
a) An increase in the marginal propensity to save
b) An increase in taxes
c) A reduction in the marginal propensity to consume
d) All of the above
e) None of the abov

28) Suppose the consumption equation is repsesented by the follwing: C=250…… savings is
 a) -250+0.75YD
b) -1000+0.25YD
c) -250+0.25YD
d) -1000+0,75YD

29) An icnrease in the real wage rate will cause

a) The labor demand curve to shift to the right.
b) The labour demand curve to shift to the left.
c) The quantity of labor damanded rise.
d) A movement along the labor demand curve

30) According to the Fisher-equation if the expected rate of inflation is….

a) The nominal interest rate will be higher and the real interes will be lower.
b) Both the nominmal and the real interest rate will be lower.
c) The nomina interest rate will be higher but the real interes will be lower.
d) Both the nominal and the real interest rate will be higher.

31) A government policy that will increase frictional unemployment…

a) Extension of job training program.
b) Increase in unemployment insurance benefit.
c) Reduction in the minimum wage.
d) Dissemination of information about job vacancies.

32) The nominal money supply will decrease, if

a) The government sells bonds to the privet sector to fina…..
b) The center bank buys government bonds in through….
c) The central bank sells government bonds in through…..
d) If the government pays interest on its governement bo….
e) None of the above statements are true.

33) Which of the following is not a social cost of inflation

a) Price tags have to be changed more frequently.
b) People hold less money than the sum they would….
c) More resource is neede to manage money balance…..
d) The purchasing power of money is reduced which….
Choose the right answer

1) Aggregation is the procees of

a) Calculating real GDP based on nominal GDP and the price index.
b) Summing individual economic variables to obtain economywide totals.
c) Forecasting the componets of GDP.
d) Predicting when recessions will occur.

2) Keynes assumed that wages and price were slow to adjust in order to explain
a) Persistently high unemployment.
b) High inflation.
c) The high level of interest rates.
d) Why inflation fell in recessions.

3) To what extent are homemaking and child-rearing accounted for in the govermment
a) Not at all
b) Only to the extent that they are provided for pay
c) Only to the extent that taxes are paid on them
d) All homemaking and child-rearing are accounted for

4) İf nominal GDp for 2009 is $6400 billion and real GDP for 2010 is $6720 billion and the
growth rate of real GDP is
a) 0%
b) 0.5%
c) 5%
d) 50%

5) The consumer price index (CPI) was 180 for 2009 when using 1995 as the ba... suppose
we switch and use 2009 as the base year (2009 = 100). What is the CPI base year?
a) 18.0
b) 55.6
c) 80.0
d) 111.2

6) An increase in the number of workers hired by a firm could result from

a) A decrease in the marginal product of labor.
b) A decrease in the marginal revenue product of labor.
c) An icnrease in the real wage.
d) A decrease in the real wage.

7) The labor force participation rate is the percentage of the adult population;
 a) Employed.
b) Willing to work but unable to find jobs.
c) Unemployed.
d) Working or actively looking for work.

8) Saving is a ________ variable, and weath is a _______ variable.

a) Stock; flow
b) Flow; stock
c) Stock;stock
d) Flow;flow

9) How many people are employed if the labor force participarion........ unemployed, and
there are 30 million people not in the labor force?
a) 54 million
b) 48 million
c) 42 million
d) 30 million

10) İn economics, money refers to

a) İncome
b) Wealth
c) Assets used and accepted as payment.
d) Currency,

11) Last year, linus earned a salray of $25,000 and he spent $24,000, thus saving $1,000 the
year, he received a bonus of $1,000 and he spent $500 of it, seving the other $500, what
marginal propensity to consume ?
a) .96
b) .04
c) .50
d) .02

12) What’s the most common way for a central bank to reduce the money supply?
a) Colect higer taxes
b) Sell bonds to the public
c) Buy bonds from the government
d) Buy bonds from the public

13) Suppose velovity is 3, real output is 9000, and the price level is 1.5. what is the demand in
this economy ?
a) 2000
b) 3000
c) 6000
d) 30,000
14) Suppose real money demand is 1000, real output is 6000, and the price level..... of
velocity in this economy ?
a) 2
b) 3
c) 6
d) 12

15) When a government prints money to finance its expenditures, it is likely

a) Unemployment.
b) İnflation.
c) Deflation.
d) Reductions in the use of barter.

16) The IS curve

a) İs horizontal.
b) İs vertical
c) Slopes downward
d) Slope upward

17) Which of the following change shifts the SRAS curve up ?

a) An icnrease in the labor force
b) An icnrease in frims’ costs
c) A decrease in government purchases
d) And icnrease in the money supply

18) İn the Keynesian model, which curve is vertical?

a) LRAS
b) SRAS
c) AD
d) NS

19) An increase in the expected rate of inflation would

a) Shift the Phillips curve upward.
b) Shift the Phillips curve downward.
c) Shift the long-run Phillips curve to the right.
d) Shift the long-run Phillips curve to the left.

20) Shoe leather costs are

a) the costs in time and effort incurred by peoople and firms who are tying to
minimiz the cash because of inflation.
b) The cost of changing prices, such as printing and mailing catalogues.
c) The cost of the redistribution of wealth between lenders and borrowers.
d) The cost associated with the confusion of prices as signals.
21) The value of real GDP in th current year equals
a) The value of current-year output in prices of the base year.
b) The value of current-year output in prices of the current year.
c) The calue of base-year output in prices of the base year.
d) The calue of base-year output in prices of the current year.

22) Which of the following will cause the aggregate supply curve to shift down ?
a) An increase in firms’ markup over labor costs
b) An increase in the expected price level
c) An increase in unemployment benefits
d) All of the above
e) None of the above

23) Fractional reseve banking is the system that

a) Allows banks not to insure their deposits
b) Allows banks not to join the Federal Reserve System
c) Limits banks’ activites from crossing state lines.
d) Allows banks to keep smaller reserves than their deposits.

24) Suppose the ecoenomy is operating on the LM curve but not on the IS curve we know that
a) The goods market is in equilibrium and the money market is not in euilibrium
b) The money market and bond markets are in equilibrium and the goods….
c) The money market and goods market are in equilibrium and the bond…..
d) The money, bond and goods markets are all in equilibrium
e) Neither the money, bond, nor goods markets are in equilibrium

25) An increase in the aggregate price level, P, will most likely have which….
a) A rightward shift in the IS curve
b) A leftward shift in the IS curve
c) An upward shift in the LM curve
d) A downward shift in the LM curve

26) ?

27) Which of the following events will cause a reduction in equilibrium output ?
a) An increase in the marginal propensity to save
b) An increase in taxes
c) A reduction in the marginal propensity to consume
d) All of the above
e) None of the abov

28) Suppose the consumption equation is repsesented by the follwing: C=250…… savings is
 a) -250+0.75YD
b) -1000+0.25YD
c) -250+0.25YD
d) -1000+0,75YD

29) An icnrease in the real wage rate will cause

a) The labor demand curve to shift to the right.
b) The labour demand curve to shift to the left.
c) The quantity of labor damanded rise.
d) A movement along the labor demand curve

30) According to the Fisher-equation if the expected rate of inflation is….

a) The nominal interest rate will be higher and the real interes will be lower.
b) Both the nominmal and the real interest rate will be lower.
c) The nomina interest rate will be higher but the real interes will be lower.
d) Both the nominal and the real interest rate will be higher.

31) A government policy that will increase frictional unemployment…

a) Extension of job training program.
b) Increase in unemployment insurance benefit.
c) Reduction in the minimum wage.
d) Dissemination of information about job vacancies.

32) The nominal money supply will decrease, if

a) The government sells bonds to the privet sector to fina…..
b) The center bank buys government bonds in through….
c) The central bank sells government bonds in through…..
d) If the government pays interest on its governement bo….
e) None of the above statements are true.

33) Which of the following is not a social cost of inflation

a) Price tags have to be changed more frequently.
b) People hold less money than the sum they would….
c) More resource is neede to manage money balance…..
d) The purchasing power of money is reduced which….
Choose the right answer (20x2 points)

1) Whcih one of the follwoing is a cost of inflation

a) Menu cost
b) Shoeleather cost
c) The inconvenience of a channing price level
d) A) and b)
e) All of the above

2) İn the Keynesian cross model the curve of planned expenditure is steeper.

a) The lower is the marginal propensity to consume for households
b) The loewer is the deficit of the govermment budget.
c) The lower is the taxes levied on assets such as cars.
d) The loer is the marginal propensity to save for households

3) İn the sticky wage model of the aggregate supply it is supposed that

a) The nominal wage is flexible in the sort run.
b) The price level is inflexible in the short run.
c) Employment is determnined by the demand for labor.
d) The capital stock is increasing with a constant rate.
e) The real wage is inflexible in the short run.

4) Money is
a) A financial asset
b) The liability of the banking system.
c) The liability of the centerl bank but not the commercial banks.
d) A) and B)
e) A) and C)

5) İn the classical (long-run) model, national savings will surely increase if

a) People’s willingness to spend is enhanced.
b) The government raises taxes and reduces the deficit
c) The government raises taxes and spends this income on goods and services.
d) Households’ marginal propensity to consume increases.

6) The so called lucas-critique is an argument against discreationary economic

policy,because
a) İt shows that economic polic has no effect on real variables.
b) İt shows that discreationary economic policy is inconsistent.
c) İt shows that those predictions on which economic policy actions are based can not
be give a theoretical foundation
d) İt shows that Lucas was wrong
7) The GDP implicit Price deflator is:
a) Use to adjuct wage rates for changes in both quantity and quality.
b) Based largely on components drawn from other price indices.
c) A more exact measure of inflation that the CPI or PPI
d) A technique that corrects statistical erros in the CPI

8) Unexpected inflation does NOT cause, or create:

a) Gain for borrowers at lenders expense.
b) İnefficiency in production and distribution.
c) Stresses in both the implicit and explicit agreements that bind the people in a
sociaty together.
d) Expanded purchasing power of money when nominal income grows.

9) İn classical economic theory:

a) Flexible interest rates eqate the plans of savers and investors.
b) İnvestors make systematic errors that create instability
c) Deficiencies of private saving are offset by federal budget deficits.
d) High interst rates encourage consumption.

10) The verical distance from the origin to point a (distance 0a) respresents the rate of both:
a) İnduced consumption and the marginal propensty to consume.
b) Autonomous dissaving and autonomus consumption.
c) Aggregate expenditures and total investment.
d) Positive saving and negative consuption.

11) The vertical distance between these functions represented by line dc is the level of:
a) İnduced consumption
b) Dissaving
c) Autonomous consumption
d) Positive saving
e) İnvestment.

12) The marginal propensity to consume in this figure equals:

 a) One-third.
b) One half
c) Three-fifths.
d) Two-thirds

13) All of the following are flow variables except

a) Disposable income
b) Consumption expenditure
c) .....

Below you find a graph of IS-LM model of any economy and another of the AS-AD
model of the same economy. You will be asked to add different things to these graphs.
 a) Denote the curves by the correct labels( AS, AD, LRAS, IS, LM) and label
the axes with the correct variables.
b) Suppose that the central bank increase the money supply at the same time
when the government increases the budget deficit Illustrate the short-run and
the long-run effect of these policy changes on both graphs. ( Now the
economy is at point A) make clear which is the short-run, and which is the
long-run equilibrium.

Consider an economy that works acoording to the classical model, and the Fisher equation
holds for the money market. In this economy the consumption function is C(Y-
T)=250+0.75(Y-T), the investment function is I(r)=1000-50r, where Y is income, T is net
taxes and r is real interest rate. The government spends 1100 units of output on goods and
services and coolects 1000 units as taxes. The labor supply is 1000, while the capital stock is
2500 units. The production function of this economy can be described as Y=K0.5L0.5. The
economy is in its long-run equilibrium. The velocity of money is 2, while nominal supply of
money is 6000.

a) Calculate the equilibrium interest rate of this economy.

b) Calculate the price level.
c) What is the real wage at which the labor market is at equilibrium? What is the
nominal wage?

Define the following expressions in two sentences (3x2 points)

GDP
We can google the answer and learn so no problem here

Fisher equation

Fisher equation has been described earlier as well so just copy the same

Seigniorage

Just google
Choose the right answer (Macro final exam)

2) The fundamental identity of national income accounting implies ________.

A) Expenditure = Production + Income
B) Expenditure = Production = Income
C) Income =Expenditure - Production
D) Income =Expenditure/ Production
E) None of the above

3) The statistic most often used by economists to measure the value of economic
activity is_____
a) GDP
b) THE CPI
c) Labor-force participation rate
d) The nominal interest rate
e) The real interest rate

4）Which of the following is typically not counted in GDP?

A) any nonmarket good and services
B) income generated from apartment rentals
C) illegal drug sales
D) all of the above
E) none of the above

5) The reason only newly produced goods and services are counted in GDP is that
_____.
A) it is very difficult to input a value to used goods
B) most expenditures on used goods and services take place outside the market
C) it does not help economists make better economic predictions because
second-hand goods rarely have any residual value
D) it allows economists to avoid double counting the production of goods and services
E) none of the above

6) In a two-good economy, the price of video games is $40 and the price of energy
drinks is $2. If the annual output of this economy is 100 video games and 500 drinks,
the GDP is_____.
A) $50,080
B) $25,200
C) $5,000
D) $20,200
E) none of the above

7) if C is consumption, I is investment, I is investment, G is government purchases

and NX is net exports, according to the expenditure approach, Y would stand for ____;
and the national income identity could be written as____.
A) transfers; Y=C+I+G-NX
B) CPI; Y-C-I=G+NX
C) GDP; Y-C-I=G+NX
D) income; Y=C-I-G+NX
E) the real interest rate; Y=C+I+G+NX

8) An example of a nominal variable is _____.

A) income measured at current market prices
B) expenditures in terms of the quantities of actual goods
C) the chain weighted measure of GDP
D) all of the above
E) none of the above

video games energy drinks

year 1 price 40 2
year 1 output 100 500
year 2 price 40 2.5
year 2 output 120 550
year 3 price 45 2.5
year 3 output 150 600

9) based on the table “Real and Nominal GDP,” if year one is the base year, then the
real GDP in year two is _____.
A) 5000
B) 5250
C) 5900
D) 6175
E) none of the above

10) Based on the table “real and nominal GDP,” if year one is the base year, then the
real GDP in year three, is _____.
A) 7200
B) 8250
C) 1050
D) 7500
E) none of the above
11）Based on the table “Real and Nominal GDP,” if year one is the base year, then the
nominal GDP in year two, is _____.
A) 8250
B) 5000
C) 7200
D) 7500
E) none of the above

12) The unemployment rate is computed by _______.

A) dividing labor force by the adult population
B) dividing the number of unemployed by the adult population
C) multiplying the employment ratio by the adult population
D) dividing the labor force by the number of unemployed
E) none of the above

13) The fisher equation implies ____.

A) the nominal interest rate equals the real rate of inflation plus expected inflation
B) the real interest rate equals expected inflation
C) expected inflation equals current inflation
D) the growth rate of inflation equals the real minus the nominal rates of interest
E) none of the above

14) An increase in the expected rate of inflation is most likely to cause an increase in
________.
A) the ex post real interest rate
B) the ex ante real interest rate
C) the nominal interest rate
D) the expected real interest rate
E) none of the above

15 ?

16) Government saving refers to _________.

A) tax revenues minus transfers minus government purchases
B) tax revenues plus transfers minus government consumption
C) the saving rate times transfers
D) national plus private saving
E) none of the above

17) Money is not _____.

A) income because the former is a stock measure and the latter a flow
B) wealth because the latter is generally used to procure the former
C) as desirable as barter because the latter is more efficient than the former
D) all of the above
E) none of the above

18) Someone who has just inherited a “goldmine” has received a great deal of ______.
A) wealth
B) money
C) income
D) currency
E) liquidity

19) The most liquid asset is ______.

A) stocks
B) bonds
C) cash
D) real estate
E) none of the above

20) Open market operations alter the money supply by_____.

A) influencing banks’ ability to make loans to individuals and corporations
B) adding currency to or withdrawing currency from banks’ vaults
C) adding currency to or withdrawing currency from the checking accounts of
individuals and corporations
D) influencing banks’ ability to make loans to the government
E) none of the above

21) M1 differs from M2 because_______.

A) M2 includes components that are less liquid than any component of M1
B) M1 does not include savings deposits and M2 does
C) M1 is included in M2 but M2 has more components
D) all of the above
E) none of the above

22）The quantity theory of money _____.

A) is the product of Keynesian economists
B) links total income to a country’s supply of money
C) explains why the equation of exchange is true by definition
D) all of the above
E) none of the above

23) The quantity theory of money explains how _____ depends on _____.
A) real GDP, the money supply
B) the price level, the demand for money
C) the money supply; the velocity of money
D) all of the above
E) none of the above

24) the velocity of money________.

A) represents the average number of times a dollar is spent in a given year
B) provides the link between the money supply and money demand
C) times the money supply should equal real GDP
D) all of the above
E) none of the above

25) Inflation _____.

A) is costly because the classical dichotomy may not always hold
B) that is anticipated (or expected) can be costly
C) is costly for many reasons but chief among them is that inflation makes it more
difficult to plan for the future
D) all of the above
E) none of the above

26) The vertical distance from the origin to point a [distance 0a] represents the rate of
both:
A) induced consumption and the marginal propensity to consume
B) autonomous dissaving and autonomous consumption
C) aggregate expenditures and total investment
D) positive saving and negative consumption.

27) The vertical distance between these functions represented by line do is the level of:
A) induced consumption
B) dissaving
C) autonomous consumption
D) positive saving
E) investment

28) The marginal propensity to consume in this figure equals:

A) one- third
B) one half
C) three-fifths
D) two-thirds

29) With high inflation______.

A) stock market investors are always worse off than consumers and households
B) producers are always worse off than consumers
C) creditors are always worse off than debtors
D) all of the above
E) none of the above

30) The consumption function shows how _______.

A) the marginal propensity to consume varies with disposable income
B) income varies as a result of changes in consumption
C) consumption depends on the decision to save
D) all of the above
E) none of the above

31) Investment spending _____.

A) is comprised of fixed and inventory investment
B) is negatively related to the real interest rate
C) is heavily influenced by what Keynes coined as “animal spirits”
D) all of the above
E) none of the above

32) Disposable income equals

A) income minus saving
B) income minus both saving and taxes
C)consumption minus taxes
D) the sum of consumption and saving
E) none of the above

33) The marginal propensity to consume represents

A) the level of consumption that occurs if disposable income is zero
B) the ratio of total consumption to disposable income
C) total income minus total taxes
D) the change in output caused by a one-unit change in autonomous demand
E) the change in consumption caused by a one-unit change in disposable income

34 ） An economy is in equilibrium when which of the following conditions is

satisfied?
A) consumption equals saving
B) output equals consumption
C) total saving equals zero
D) total saving equals investment
E) all of the above

35) Which of the following is included in G?

A) medicare
B) social security payments
C) interest payments on the government debt
D) government purchases
E) all of the above
AS goes left (decrease) if increase in price of oil, labor (wages go up), etc

Right if tech

Real rate = nominal rate - inflation rate

real wage unemployment = classical unemployment -> because minimum wage is above equlibrium
wage rate

Feds increase money supply by:

-BUYING bonds

- + or - discount rates

- lower reserve requirements

If the Fed wants to decrease the money supply, it sells bonds from its account, thus taking in cash and
removing money from the economic system.

Monetary base is the total amount of a currency that is either circulated in the hands of the public or in
the commercial bank deposits held in the central bank's reserves. This measure of the money supply
typically only includes the most liquid currencies; it is also known as the "money base."

Econ can only be at 3 points: ressionary gap, inflationary gap, full employment

Stagflation: high price, low output AS moves left

LM curve depends on financial market/money market

expansionary monitary policy:

M goes up, bonds prices goes up, down i, increase, invest, goods up, output up

LM right (increase) if output goes up.

contractionary monitary policy:

LM left (decrease) if output goes down.

M goes down, bond down, i up, invest down, down goods, output down

IS goes right if spending goes up. - Left if taxes go up/spending goes down

IS shows output real intrest rate.

increase in gov spend IS, right.

GDP= Consumer spending + investment + gov spending + net exports

Sellers

P = price level

Y = goods (real GDP)

P*Y = nominal gdp

Buyers

M = money

V =velocity (how many times it was spent) ~7 usa

M*V = nominal gdp

keynesian cross 45'= Y=AE => Real GDP = Ag expenditure => Y=C+S+T

Y=C+I+G+(X-M)

Keynesian economics advocates government intervention to help overcome the lack of aggregate
demand to reduce unemployment and increase growth.

nom gdp increase = yr2 / yr 1 gdpn

real gdp increase = yr2 / yr 1 gdpr

cpi= nom/real
cpi= (yr looking for (whole basket -p*q+p*q..)/ base year (whole basket -p*q+p*q..))*100

unemploy rate = unemploy /labor market

you don't save $ you save income

4) Real GDP =________ where the price level is the ________.

B) Nominal GDP ÷ Price level; GDP deflator

Real GDP= p1*q2+ p1*q(yr)2...

9) The inflation rate can be obtained by ________.

D) subtracting the growth in real GDP from the growth in nominal GDP

gdp deflator = (nom/real) *100

tax multiplier is one less then spending multiplier

Real intrest rate = nom -inflation

xn =x-m

currency app =-xn

cur dep=xn up

intrest are only good international

Choose the right answer (20x1 points) Midterm exam

1) All of the following are flow variables except

a) Disposable income
b) Consumption expenditure
c) Personal wealth
d) Gross domestic product.

2) The GDP deflator id defined as

a) Nominal GDP/real GDP
b) Nominal GDP*real GDP
c) Nominal GDP-real GDP
d) Nominal GDP+real GDP

3) Percentage changes ın CPI tend to overstate ınflatıon because

a) People substitute away from goods whose relative price has risen
b) The continual introduction of new goods makes consumers better off even if prices
do not fall.
c) İmprovements in product quality tend to be underestimated by govemment
agencies.
d) All of the above.

4) According to Euler’s theorem, the sum of all factor payments will equal total output if
each factor of production is paid its marginal product and if
a) The production functions has constant returns to scale
b) The production function displays diminishing marginal productivity.
c) Firms maximize profits.

5) The false statement about national saying is

a) National saving is the total amount of savings deposit in banks.
b) National saving is the sum of private saving plus public saving.
c) National saving reflects the output that remains after the demand of consumers and
government has been satisfied.
d) National saving equals investment and the equilibrium interest rate.

6) Suppose that potatoes are the only product in the econonmy, and 1,000 pounds of
potatoes are sold in a given year at $0,15 per pound. The quantity of money in the
economy is $50.
a) 5
b) 3
c) 1,5
d) 0.33
7) Expected inflation hurts
a) Money holders
b) People who receive their pensions in fixed nominal terms and who bargained for
their pensions before the inflation was expected.
c) Restaurant owners
d) All of the above.

8) According to the classical dichotomy

a) The money supply does not affect any real variables.
b) The price level and all other nominal variables are influenced by the equilibrium in
the money market.
c) Money is neutral
d) All of the above.

9) A government policy that will increase frictional unemployment is a(n)

a) Extension of job training program.
b) Increase in unemployment insurance benefit.
c) Reduction in the minimum wages
d) Dissemination of information about job vacancies.

10) Okun’s law depicts a relationship between the

a) Percentage change in real GDP and the change in the unemployment rate.
b) Percentage change in nominal GDP and the change in the labor force.
c) Absolute change in real GDP and the percentage change in the unemployment rate.
d) Absolute change in real GDP and percentage change in GDP deflator.

11) The long-run effect of an increase in the money supply include

a) An increase in the price level but no change in output.
b) An increase in output but no change in the price level.
c) An increase in both the price level and output
d) No change in either the price level or output

12) The introduction of credit cards in all of the following except

a) Increase in money demand.
b) Increase in the velocity of money
c) Shift to the right in the aggregate demand curve.
d) Increase in output in the short run
13) When the central bank uses stabilization policy to offset the decline in output
following and adverse supply shock, the point on the following graph at which the
economy will stabilize is
a) A;
b) B;
c) C;
d) D;

14) At the equilibrium level of income in the Keynesian cross

a) Unintended inventory accumulation is equal to zero.
b) Planned expenditure is equal to actual expenditure
c) There is no tendency for GDP to change.
d) All of the above.

15) According to the loanable funds interpretation of the IS-curve

a) Firms want to invest more as their income rises.
b) Banks want to lend more as the interest rate rises.
c) An increase in income raises saving and lowers the interest rate that equilibrates
the supply of and demand for loanable funds.
d) All of the above.

16) According to the quantity equation MV=PY. If velocity is constant,

a) The LM curve will slope upward.
b) The LM curve will slope downward.
c) The LM curve will be horizontal.
d) The LM curve will be vertical.
 The following belongs to questions 16 and 18.
Suppose that the short-run equilibrium of an economy can be described by an IS-LM
model.
Suppose further that the government raises taxes all other things being the same.

17) As a result of this policy

a) The IS curve will shift to the right.
b) The IS curve will shift to the left.
c) The LM curve will shift to the right.
d) The LM curve will shift to the left
e) a) and c)
f) b) and d).

18) in the short run then

a) The interest rate and income will increase
b) The interest rate and income will decrease
c) The interest rate increase and income will decrease.
d) The interest rate will decrease and income will increase.
e) It is not possible to device what will happen to the interest rate and income.

19) In the sticky wage model of aggregate supply, when GDP increases and there are no
supply shocks, real wages
a) Rise
b) Fall
c) Remain constant.
d) May rise, fall, or remain constant.

20) The following statement is true

a) Monetary policy has an especially long outside lag.
b) Fiscal policy has an especially long inside lag.
c) Automatic stabilizers eliminate part of the inside lag in the conduct of fiscal policy
d) All of the above.

Explain the Fisher equation! (3 points)

I = r+ A

Where; i=nominal interest rate r= real interest rate A= inflation

It shows that the nominal interest rate can change by two reason; real interest rate
changes or inflation changes. (1867-1947)
Below you find a graph of IS-LM model of any economy and another of the AS-AD
model of the same economy. You will be asked to add different things to these graphs.

a) Denote the curves by the correct labels( AS, AD, LRAS, IS, LM) and label
the axes with the correct variables.
b) Suppose that the central bank increase the money supply at the same time
when the government increases the budget deficit Illustrate the short-run and
the long-run effect of these policy changes on both graphs. ( Now the
economy is at point A) make clear which is the short-run, and which is the
long-run equilibrium.