MIDTERM EXAMDUE DATE: TUESDAY, SEPTEMBER 27· Please write on answer sheet and sign: “I have neither given nor received assistance…



·         Please write on answer sheet and sign: “I have neither given nor received assistance on this exam.  Otherwise I am guilty of cheating.”

Questions from Pugh and Garrett, Introducing Keynesian Economics

1.         One economist shown in the cartoon, Paul Samuelson, called the book difficult

a.         and needing to integrate what was taught by the classical economists.

b.         and not ready for prime time until it was better edited.

c.         and brilliant.

d.         both a) and b) are correct.

2.         Based on their dancing away in spite of massive unemployment, the _________ economists depicted in the cartoon seemed to be ___________ the problems of the Great Depression.

a.         classical  — sympathetic to

b.         classical  — oblivious to

c.         Keynesian –  well aware of

d.         Keynesian —  interested in trying new methods of solving

3.         “If the Treasury were to fill old bottles with banknotes,” refers to Keynes policy of

a.         ending the depression with increasing aggregate demand.

b.         ending the inflation of the 1920s be increasing aggregate demand.

c.         ending the depression by increasing aggregate supply.

d.         ending inflation once and for all by decreasing aggregate supply.

Questions from Keynes “An Open Letter to President Roosevelt.”

4.            The purpose of Keynes’ letter to President Roosevelt isa.            to congratulate him on his election as President.b.            urge policy changes consistent withThe General Theory.­­c.            urge policy changes consistent with classical economics.d.            to urge helping farm incomes by selective supply decreases.e.            both b) and d) are correct. 

5.         When Keynes refers to borrowing in paragraph 5, he is also referring to

a.         tax and spend policies.

b.         deficits.

c.         what could be considered decreasing aggregate demand since he is implying more government spending without any tax increases.

d.         what could be considered increasing aggregate demand since he is implying more government spending without any tax increases.

e.         both b) and d) are correct.

Questions on Lecture

6.         When can savings be a “bad thing?”

a.         never

b.         when it causes inflation to increase.

c.         when it causes unemployment to increase

d.         both b) and c) are correct.

7.         The equilibrium quantity both bought and sold and the price of good x are determined 

a.         by the intersection of the microeconomic supply and demand curves.

b.         by the intersection of the macroeconomic supply and demand curves.

c.         by the macroeconomic supply curve.

d.         by the macroeconomic demand curve.

8.         An increase in aggregate demand  with an upward (positively) sloping supply curve will

a.         increase employment.

b.         increase the price level.

c.         increase output.

d.         all of the above.

9.         Mr. E, who was a petroleum engineer for 20 years, has been laid off for the last three years.  He has voluntarily withdrawn himself from looking  for a job since he feels that he is too old to start a new career.  For purposes of computing the unemployment rate he is classified as

a.         frictionally unemployed.

b.         unemployed.

c.         a discouraged worker.

d.         a member of the labor force.

10.       __________ determines when a recession officially begins and ends, and this determination ______ made immediately when the recession occurs.

a.         A consensus of business reporters // is

b.         The President’s Council of Economic Advisors // is not

c.         The NBER // is not

d.         The President’s Council of Economic Advisors // is

11.       Which of the following people is structurally unemployed?

a.         Brendan left his job as a soda jerk in New Jersey to become a soda jerk in Madrid, NM.  He was unemployed for 6 weeks during the transition.

b.         Mildred quit her job after giving birth to a child.

c.         Clem, a skilled corset maker, lost his job when his factory shut down due to a permanent reduction in the demand for corsets.

d.         Dwanella lost her job when the electronics assembly plant was shut down temporarily due to low sales of the product.

12.          If one produces more because of longer hours at work, then one can infer an increase in productivity.

a.         true

b.         false

13.       Sandy discovers that by entering the Woolly Wild West Fun Center via a side road she can avoid the long lines at the main entrance.  Everyone at the park reaches the same collusion and acts upon it.  This can best be described as an example of

a.         correct macroeconomic reasoning.

b.         the fallacy of composition.

c.         a normative way of thinking.

d.         both a) and c) are correct.

14.       The level of real GDP and the price level are determined

a.         by the intersection of the microeconomic supply and demand curves.

b.         by the intersection of the macroeconomic supply and demand curves.

c.         by the macroeconomic supply curve.

d.         by the macroeconomic demand curve.

15.       An increase in the price level means

a.         all prices are increasing.

b.         all prices that are increasing are increasing at the same rate.

c.         the average level of prices is increasing.

d.         both b) and c) are correct.

16.       Which one of the following can be determined by all income that the factors of production receive during a particular period?

a.         national income

b.         gross domestic product

c.         disposable income

d.         personal income

e.         both a) and d) are correct as long as transfer payments are also included in national income.

17.       Which one of the following items is NOT a factor cost?

a.         proprietor’s income

b.         employees’ compensation

c.         business transfer payments

d.         dividends

e.         rental income of persons

18.       If prices on average have remained constant between 1970 and 1990 and the price of a McDonald’s hamburger increased from $1.00 to $4.00 then,

a.         there has been both a nominal and a real price change.

b.         there has been only a nominal price change.

c.         there has been only a real price change.

d.         there has been neither a real nor a nominal price change.

19.       The Keynesian range of the aggregate __________ curve shows an economy in which aggregate demand is relatively ________.

a.         supply – stable

b.         supply – low

c.         demand –constant

d.         demand — high

e.         both a) and c) are correct.

20.       Bottleneck inflation occurs

a.         in an economy with substantial amounts of unemployment.

b.         at full employment.

c.         before full employment.

d.         when resources are perfectly interchangeable.

e.         both c) and d) are correct.

21.       Which is the best description of the effects of inflation?

a.         Inflation redistributes income.  Since some benefit, inflation is not really a problem.

b.         Inflation decreases everyone’s nominal and real income.

c.         Inflation decreases everyone’s nominal income but not anyone’s real income.

d.         Inflation redistributes income arbitrarily.  Therefore some win and some lose from inflation.

                  22.       Which of the following transactions should not be included in the calculation of GDP?


Jim purchases a new automobile.


Joe pays a plumber $100 to fix a broken pipe.


Sandy receives $100 in food stamps.


Kurt purchases an airline ticket for $500 just before a big reduction in fares.

                  23.       If the consumer price index (CPI) was 80 in 2004, 100 in 2005, and 110 in 2006, then the base year must be








The base year cannot be determined from the given information.

24.       Which of the following is a type of unemployment that is due to business cycles? This type of unemployment rises during economic recessions and falls during economic expansions.


cyclical unemployment.


frictional unemployment.


natural rate of unemployment.


structural unemployment.

Go to: http://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ to answer the following four questions:

25.       This data is provided by __________ and is on _____________.

a.         Phil Mayer  // unemployment and GDP

b.         Bureau of Economic Analysis  // inflation

c.         Kennesaw State University  // inflation and unemployment

d.         Bureau of Labor Statistics // inflation

26.       Which of these does the number 233.707 represent?

a.         the inflation rate for 2014

b.         the inflation rate for 2013

c.         the CPI for January 2014

d.         the CPI for January 2015

c.         the inflation rate for January 2014 through January 2015

27.       For this question, note that when computing percentage changes, the denominator should be the initial number.  How would you compute the inflation rate from December 2008 to December 2009?

a.         215.949 – 210.228 divided by 215.949

b.         215.949 – 210.228 divided by 210.228

c.         215.303 – 214.537 divided by 215.303

d.         214.537 – 215.303 divided by 214.537

28.       Let’s say that a textbook sells for $200 in July, 2015.  You note that the CPI is 238.654 for July, 2015.  If you wanted to know what the same text sold for in July,1985 assuming that the real price is constant, what else do you need to know?

a.         that the base period is 1982-1984.

b.         that the inflation rate in 1985 was 3.6 percent based on a year to year average

c.         the quotient of 107.8 / 238.654

d.         the inflation rate from July 1985 to July 1986

e.         both a) and b) are correct

29.       In recent years the both the unemployment and labor force participation rate are declining.  The best interpretation is

a.         both employment indicators suggest an improved economy.

b.         the economy is headed towards a recession.

c.         this is a mixed message on the state of the labor market.

d.         the economy is headed towards stagflation.

30.       The Phillips’ Curve can be associated with the intermediate region of the

a.         aggregate supply curve.

b.         aggregate demand curve.

c.         microeconomic demand curve.

d.         microeconomic supply curve.

e.         both a) and b) are correct.

31.       A substantial increase in oil prices in the 1970s caused

a.         demand-pull inflation.

b.         cost-push inflation.

c.         stagflation.

d.         both a) and b) are correct.

e.         both b) and c) are correct.

                  32.       A Minnesota farmer buys a new tractor made in Iowa by a German company.  As a result,


U.S. investment and GDP increase, but German GDP is unaffected.


U.S. investment and German GDP increase, but U.S. GDP is unaffected.


U.S. investment, U.S. GDP, and German GDP are unaffected, because tractors are intermediate goods.


U.S. investment, U.S. GDP, and German GDP all increase.

Short Answer and Question

33.       You are in the Keynesian range of the aggregate supply curve.  Advise the President on good economic policy.  The terms “aggregate demand”, “output”, “employment” and “inflation” should be part of your answer.  Answer in no more than 75 words.


1-32:    10 points each

33:       30 points



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