Microeconomics/Macroeconomics 2010

<p>^Thanks! 10char</p>

<p>@CanadaBoy</p>

<p>C. :)</p>

<p>That would be an oligopoly.
I’ll start posting a question a day for Macro & Micro.</p>

<p>Bump!</p>

<p>Any new questions?</p>

<p>Can anyone post any Macro questions? That’s the only one I’m doing this year. :)</p>

<p>All three are Macro questions, enjoy! :)</p>

<p>Gross Domestic Product is a close approximation of:
A) national income
B) societal welfare
C) the consumer price index
D) GDP Deflator
E) the current account balance</p>

<p>The government measures inflation using the:
A) GNP
B) URL
C) CPI
D) FED
E) GDP</p>

<p>Long-run aggregate supply is most likely to increase as the result of:
A) an increase in the interest rate
B) increased investment in capital
C) an increase in aggregate demand
D) an increase in the unemployment rate
E) an increase in the exchange rate</p>

<p>@AvidStudent
A?
E…
B…</p>

<p>Which of the following does the federal reserve use most often to combat a recession?
(A) Selling securities
(B) Buying securities
(C) Reducing the reserve requirement
(D) Increasing the discount rate
(E) Increasing the federal funds rate</p>

<p>@Radiums,</p>

<p>A = correct, nice job not falling into the trap of “societal welfare”
E = incorrect, CPI or Consumer Price Index gauges inflation. GDP is the total value of finished goods and services produced that year.
B = correct</p>

<p>^^Is the answer B?</p>

<p>@Wartsandall yes</p>

<p>^^^Is the answer A?</p>

<p>Edit: =( Someone I got those 2 mixed up. Could you explain?</p>

<p>The FR sells securities when they want to combat inflation. When you sell securities, the country gets less money (MS), thus less consumption and investment, so Aggregate Demand decreases (inflation goes down). </p>

<p>and when the FR buys securities, they want to combat unemployment, the county gets more money, more consumption and investment, AD increases -> GDP increase (unemployment decrease)</p>

<p>Recession-> Increase in government spending/decrease in taxes</p>

<p>Inflation-> Decrease in government spending/increase in taxes</p>

<p>

</p>

<p>^Is it A? 10char</p>

<p>^No, the answer is B. </p>

<p>Tax reductions-> Stimulatory fiscal policy</p>

<p>Open market purchases-> Expansionary monetary policy</p>

<p>That question is from my Barron’s review book though so it’s probably more difficult than the average question one would likely view on the test.</p>

<p>

Wasn’t the question asking about contractionary policy though?</p>

<p>^Yes, it was asking that. That seems somewhat contradictory then, seeing as how the idea would be to increase taxes as opposed to reducing them. That’s the answer and explanation though.</p>

<p>Let me look into it.</p>

<p>The contractionary phase of the business cycle is the phase of the business cycle when the GDP is declining, so the correct policy for that phase should be expansionary.</p>

<p>Is it sometimes the case that an increase in government spending may not be beneficial during a recession? I thought that there were some situations where it would not have an effect on the unemployment rate.</p>

<p>During a contractionary phase the correct fiscal policy is to reduce taxes.
In contractionary POLICY tax increases play a role. </p>

<p>Not that it affects anything in the long run anyway :p</p>

<p>

</p>

<p>Couldn’t it be both B and C? Both are expansionary policies (granted, one is monetary and one is fiscal) and thus both are applicable during a recession.</p>