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Economics Multiple Choice Questions


10 multiple choices and 6 free response.

1. Which of the following is not a method to reduce the inflationary gap?


Increasing government spending


Reducing transfer payments


Raising taxes


Decreasing government expenditure

2.Real GDP


is nominal GDP adjusted for changes in the price level.


is also called nominal GDP.


measures GDP minus depreciation of capital.


will always change when prices change.

3.If the Fed reduces the required reserve ratio, how will this affect excess reserves and the money supply?


Both will increase.


Excess reserves increase and the money supply decreases.


Both will decrease.


Excess reserves decrease and the money supply increases.

4. Which of the following is expected to increase aggregate demand in the short run?


Deficit budget


Surplus budget


Zero based budget


Balanced budget

5. E&S Cooling Co. installs air conditioning systems in new houses for homebuilders, and replacement systems for homeowners. Sales of which systems are included in this year’s GDP?


Sales of replacement systems


Sales of both systems


Sales of systems in new houses


Neither system would be included, because they are always intermediate goods.

6. If Congress votes to increase government purchases and at the same time decrease personal income taxes, they


have decided to balance the federal budget.


have voted for the proper policy to counteract a recessionary gap.


have voted for the proper policy to counteract an inflationary gap.


are trying to achieve a federal budget surplus.

7. An equilibrium point where actual output is beyond the potential GDP is termed as


deflationary gap.


recessionary gap.


expansionary gap.


acceleration gap

8.Whirlpool Corporation buys steel in sheets to manufacture refrigerators. Whirlpool also buys a new factory and a metal press to mold the steel. Which purchases are included in GDP?

a.the steel

b.the steel, the factory, and the metal press

c.the factory and the metal press

d.the steel and the metal press

9.Suppose the economy experiences a sudden increase in output but a decrease in prices. Then, most likely:

a.the AS curve has shifted leftward, while AD has not moved

b.the AD curve has shifted leftward, while the AS curve has not moved

c.the AD curve has shifted rightward, while the AS curve has not moved

d.the AS curve has shifted rightward, while the AD curve has not moved

10.Think about a change to the equilibrium in the market for all goods and services brought by the discovery of newer and better technologies. What will happen to GDP and the price level as a result?

a. GDP falls and P rises

b.GDP rises and P rises

c. GDP falls and P falls

d. GDP rises and P falls

Question 1 (10 points):

Which of the following transactions are included in gross domestic product, and by how much does each raise GDP?

  • Jessie pays a carpenter $50,000 to build a garage.
  • Eric purchases $10,000 worth of materials and builds himself a garage, which is worth $50,000.
  • Caden goes to the woods, cuts down a tree, and uses the wood to build himself a garage that is worth $50,000.
  • The Macros family sells its old house to the Micros family for $40,000. The Macros then buy a newly constructed house from a builder for $500,000.
  • You purchase a used computer from a friend for $200.
  • Your university purchases a new mainframe computer from IBM, paying $25,000.
  • You win $100 in Atlantic City casino.
  • You make $100 in the stock market.
  • You sell a used economics textbook to your college bookstore for $60.
  • You buy a new economics textbook from your college bookstore for $100.

Question 2 (10 points):

In Macroland public or government spending (G) is relatively unproductive, when compared to private real investment (I). Policy makers want to stimulate private investment, but politically they cannot accept inflation arising as a result of this policy. Therefore, they want to keep AD stable while still stimulating real investment. One of the members of the Council of Economic Advisors says there’s nothing they can do then.

a) Do you think he is right? Yes / No

b) If he is wrong, what is the best fiscal policy for the government and monetary authorities facing this situation?

Question 3 (15 points):

How many types of business cycles did we examine in class? Please use the appropriate graphs and mention their main differences. In each case, please refer to a specific example.

Question 4 (15 points):

Please, describe what the current economic situation is for most advanced economies, using the US as an example. Given the current economic situation, what are the challenges that the Fed faces and what policies should they adopt, please?

Question 5 (15 points):

Generally speaking, would you say that inflation is relatively stable? Why or why not? Are there any factors that could distort this behavior of inflation?

Question 6(15 points)

“Markets are showing “stubborn resilience” despite inflation concerns,” the WSJ, Nov. 2021.

Why don’t markets seem to be too concerned about inflation? Should markets be concerned about inflation and why or why not, according to your opinion?


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