Faculty of Management Technology Economics D Department

Macroeconomics (ECON403) S21 Prof. Christian Schubert

Quiz Two

Name: ____________________________________________________________________

ID: ______________________ Tutorial Number: ______________________

(I) Solve all of the following MCQs in the below table:

(1) Stagflation is typically caused by a…

(a) negative supply shock
(b) positive supply shock
(c) positive demand shock
(d) negative demand shock

(2) Disney World, when suddenly facing increased demand, may respond by…
(a) Lowering prices
(b) Closing down
(c) Telling customers to stay home
(d) Asking customers to wait in line
(e) None of the above

(3) “When observing government reducing T, consumers will expect that T has to rise again
soon. Hence they will not spend but save!” That claim is known as…
(a) Fisher effect
(b) Metwally’s theorem
(c) Schubert’s law
(d) The idea behind the Keynesian consumption function
(e) Ricardian equivalence

(4) 1 / 1 – [MPC (1 – t)], that’s…

(a) Nonsensical, a fantasy expression
(b) The multiplier in a model without government
(c) Ricardian equivalence
(d) The multiplier in a model with taxes
(e) The Keynesian consumption function
 Faculty of Management Technology Economics D Department
Macroeconomics (ECON403) S21 Prof. Christian Schubert

(5) In 2009, Germany imposed the so-called “Schuldenbremse”. That’s a constitutional rule
that requires the German government to…
(a) get its funds through borrowing, rather than through taxes
(b) slow down (“bremsen”) the growth of the government sector
(c) reduce taxes
(d) limit its budget deficit
(e) run budget surplus each year

(6) Expansionary fiscal policy is typically required to…

(a) Close an inflationary gap
(b) Annoy people
(c) Close a recessionary gap
(d) Increase government’s revenues
(e) None of the above.

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 Faculty of Management Technology Economics D Department
Macroeconomics (ECON403) S21 Prof. Christian Schubert

(II) Problem Questions

Assuming a starting point at the long-run equilibrium, what happens if there is a positive demand
shock? Please sketch this positive demand shock in a fully labelled diagram. State how the
government can respond to help close this gap.