Year: First Year University Year: 2020/2021

Exam: Final Exam/Second Semester Date: 6/19/2021

Program: English Section, Economics Time :Two hours

Principles of Macroeconomics Objective Questions: 100%

Model 1

Answer the following questions:

The First Question (60 marks)

Under each of the following statements are a number of possible answers, only
one of which is correct and you are asked to select it (by shading the correct letter
in the answer sheet):

1. In a closed economy without government, which of the following is correct?

A) MPC + MPS = APC + APS B) APC + MPC = APS + MPS
B) APC + MPS = APS + MPC D) APC - APS = MPC - MPS

2. The consumption and saving schedules reveal that:

A) consumption rises, but saving declines, as disposable income rises.
B) saving varies inversely with investment.
C) saving varies positively with the level of disposable income.
D) saving is inversely related to the rate of interest.

Consider the following figure for a closed economy with government. If Government spending =
200, T = 100, Answer the questions below (Questions from 3 to 12);
AE
45 line
AE =500+0.8Y

100 Y
E

3. According to the above figure; income equals consumption at the level of income equals;
A) 700 B) 600 C) 500 D) 200

1- Model 1
 C=100+0.8Y
Y=C
Y=100+0.8Y
0.2Y=100
Y=500
4. According to the above figure; consumption function out of disposable function is given by:
A) C = 100 + 0.8Yd B) C = 200 + 0.8Yd
C) C = 500 + 0.8Yd D) C=180+0.8Yd
C= 100+0.8Y=100+0.8(Yd+100) = 100+0.8Yd+80=180+0.8Yd

5. According to the above figure; the equilibrium income equals;

A) 1500 B) 2500 C)3500 D) 4500
Y=AE= 500+0.8Y
500=0.2Y
Y=2500
6. According to the above figure; the marginal propensity to spend equals;
A) 0.7 B) 0.8 C) 0.2 D) none of the above

7. According to the above figure; the investment is

A) autonomous and equals 200 B) autonomous and equals 100
C) autonomous in a part and depends on the income in another part.
D) induced by income and equals 200
500=a + G +I = 100+200+I
I=200
8. According to the above figure; saving function is given by:
A) S = -180 + 0.2Yd B) S = -200 + 0.2Y
C) A and B are true D) S = -100 + 0.2Y
S=-180+0.2Yd=
S= -180+0.2(Y-100) =-180+0.2Y-20=-200+0.2Y
9. According to the above figure; the following statement is true
A) the AE line has to be parallel to the consumption line
B) the marginal propensity to spend equals the marginal propensity to consume
C) the slope of the AE function is the same as the slope of the consumption function.
D) all of the above

10. According to the above figure; if Government spending increases by 50, equilibrium income
increases by:
A) 500 B) 250 C) 200 D) none of the above
K=1/0.2=5 ∆Y=50*5=250
11. According to the above figure; if the government would like to stimulate the economy by 1000,
it should decrease taxes by:
A) 250 B) 500 C) 200 D) none of the above
K=-0.8/0.2=-4 ∆T=1000/4=250
12. According to the above figure; if the government increases both government spending and taxes
by 500; equilibrium income will increase by------- to become--------
A) 1000; 3500 B) 2500; 5000 C) 500; 3000 D) none of the above

Consider the following information for a given economy:

C = 200 + 0.8Yd, I =1000, G =200, tax rate=0.2, X=1000, marginal propensity to import
(m)= 0.14, and answer the questions below (Questions from 13 to 19);

13. According to the above information, net export function of this economy is given by:
A) NX=1000 - 0.14Y B) NX=1000 + 0.14Y
2- Model 1
 C) NX=100+0.8Y D) none of the above

14. According to the above information; consumption function is given by:

A) C = 200 + 0.8Y B) C = 200 + 0.64Y
C) C = 200 + 0.16Y D) none of the above

15. According to the above information; the AE function for that economy is given by:
A) AE = 2400+0.5Y B) AE = 2400+0.64Y
C) AE= 2200 - 0.5Y D) none of the above

16. According to the above figure; the equilibrium income equals;

A) 400 B) 4800 C) 4000 D) none of the above

17. According to the above information; at equilibrium, the level of consumption is------- and the
level of saving is---------
A) 3272; 568 B) 3272; 1528 C) 4232; 568 D) none of the above

18. According to the above information; at equilibrium, the deficit or surplus in the government
budget is
A) surplus = 600 B) deficit=600 C) surplus=760 D) none of the above

19. According to the above information; an increase in investment by 100 is expected to increase the
equilibrium level of income by:
A) 400 B) 300 C) 200 D) none of the above

20. Which of the following will cause a positive (rightward) shift of the AS curve?
A) A rise in exports. B) An increase in oil prices.
C) A fall in government spending. D) A decrease in the oil prices.

21. Which of the following will cause a decrease in equilibrium GDP?

A) An increase in government spending. B) An increase in autonomous
consumption.
C) An increase in imports. D) An increase in exports.

22. As income increases with a linear consumption function, the average propensity to consume:
A) remains constant B) increases
C) increases up to be equal the MPC D) declines

23. Which of the following is expected to shift investment function downward?

A) Lower interest rate. B) Higher level of sales.
C) Higher interest rates. D) Higher business confidence.

24. Which of the following is expected to shift saving function up?

A) Lower interest rate. B) An increase in wealth.
C) Pessimistic consumers’ expectations D) Optimistic consumers’ expectations.

25. In the case of full unemployment, any decrease in AD will:

A) Increase real income only B) Decrease price level only
C) Increase price level and decrease real income D) Decrease real income only.

26. A decrease in the price level is expected to:

3- Model 1
 A) Shift the consumption function downwards.
B) Shift the aggregate demand function upwards.
C) Increase the aggregate expenditure. D) Decrease the aggregate expenditure

27. A positive supply shock shifts along the same aggregate demand curve, is expected to:
A) Raise prices and output B) Reduce prices and output

C) Raise prices and reduce output D) Reduce prices and raise output

28. Decreases in tax rates are one form of aggregate demand shock. Which of the following
statements is correct?
A) This is a positive aggregate demand shock.
B) This is an aggregate demand shock that induces a negative movement along the aggregate
demand curve.
C) This is a negative demand shock inducing a leftward shift in the aggregate demand curve.
D) None of the above.

29. The slope of the AS curve is likely to have:

A) constant slope between the full unemployment and full employment.
B) a steeper slope as the economy is getting closer to full unemployment.
C) a flatter slope as the economy is getting closer to full unemployment
D) None of the above.

30. Which of the following would shift aggregate demand up?

A) ΔG < 0 B) ΔI > 0 C) ΔX = 0 D) ΔI < 0

The Second Question (15 marks)

Illustrate whether the following statements are true or false (by shading T for
true or F for false in the answer sheet):

51. In the case of full capacity, any increase in AD will increase price level only.
52. The impact of multiplier will be lower if price level increases.
53. The aggregate supply curve is always upward sloping.
54. There is no difference between the effect of the expansionary fiscal policy or expansionary
monetary policy on the equilibrium price and output in the short run.
55. If planned aggregate expenditure exceeds aggregate output, planned inventory rises and output
falls.
56. An increase in government spending and decrease in taxes at the same amount has the same
effect on the equilibrium income.
57. If the consumption function is linear, MPC and APC are always constant.
58. The aggregate demand curve (AD) is negatively sloped.
59. The expansionary fiscal policy has the same effect on prices and output whatever the shape of
SRAS curve.
60. The net export function is a negative function of GDP.
61. If the MPC increases, the desired aggregate expenditure line becomes flatter.
62. If the marginal propensity to import (m) decreases, the desired aggregate expenditure line
becomes steeper.
63. An increase in tax rate is expected to increase the marginal propensity not to spend.

4- Model 1
64. At equilibrium, national saving should equal investment plus net export.
65. The value of multiplier should be more than one.
66. In an open economy, at equilibrium the exports should equal imports.
67. If income increases, both exports and imports increase.
68. The value of multiplier in the open economy is greater than its value in a closed economy.
69. As a contractionary fiscal policy, an increase in interest rate will reduce equilibrium income.
70. The trade balance (X-IM) deteriorates when domestic income decreases.
71. In a closed economy with government, If the government decides to increase G and T with the
same amount, the GDP will not change.
72. The change in real wealth has the same effect as the increase in autonomous investment on the
new equilibrium level of national income.
73. When consumption function intersects with income line APC is zero.
74. If the slope of the consumption function decreases, then the slope of the saving function
increases.
75. Capacity constraints affect the shape of the AS curve.
76. Equilibrium income is obtained at every points along the AD curve.
77. Aggregate supply shocks cause the price and income to change in the same direction.
78. A decrease in AD in the short run will cause inflation and recession at the same time.
79. An increase in the level of prices will cause an upward rotation in imports and or downward
shift in exports.
80. If MPC = 0.5, the tax multiplier equals the government spending multiplier.

Good Luck!

Dr. Mohamed Abed

Dr. Shereen Nosier

5- Model 1