ECON 2500 Practice for Exam 2 with Elaine Peterson

Use separate sheets of paper as needed to answer. Please be sure to put your name on your answer sheets and the part of the exam you are answering and the number of the question you are answering. Note there are 5 parts and each part is worth 20 points.

Part I: Please explain the following briefly:

1. What is GDP?

2. Who benefits from inflation, debtors of creditors?

3. Briefly describe the phases of the business cycle.

4. How is unemployment defined and measured?

Part II: Use separate clearly labeled diagrams for each of the following:

1) The effect of an increase in consumer spending on the aggregate expenditures model.

2) The effect of an increase in consumer spending on the aggregate demand and supply model.

3) The effect of an increase in government expenditures on the aggregate expenditures model.

4) A recessionary gap.

Part III: Explain 1. What are the different types of unemployment, discuss their relative importance and alternative policies that might be undertaken to try to reduce each.

Part IV: Choose the best answer.

1. A nation's GNP

a) is the dollar value of the total output produced within the borders of the nation
b) is the dollar value of the total output produced by its citizens, regardless of where they are living
c) can be found by summing C + S + G + Xn
d) is always less than its GDP
e) captures the all the economic activity in a country

2. MPC

a) stands for mean productivity per consumer
b) indicates marginal product of each additional consumer
c) stands for marginal propensity to consume
d) equals the multiplier
e) equals MPS

3. Given the following Consumption schedule what is MPC?

 Disposable Income Consumption 200 205 225 225 250 245 275 265 300 285

a) 1/4          b) 3/4            c) 1 1/2                d) .20                e) 4/5

4. Assume that X, Y, and Z are goods which constitute a "market basket" of goods and services used to compute a GDP price deflator and that 1985 is the base year

 Good Quantity in 1985 Quantity in 1996 Price in 1985 Price in 1996 X 5 6 \$2 \$3 Y 3 4 \$8 \$7 Z 8 9 \$5 \$8

The GDP price deflator in 1996 is about: a) 100   b) 88   c) 135   d) 174   e) 200

Part V: Explain 1. Describe Keynes' reaction to classical economics and how this relates to the times in which he lived.