1999 Economics Challenge Play-off
MACROECONOMICS
Round I

1. The main purpose of federal deposit insurance is to
   1. permit the Federal Reserve to control the money supply.
   2. solve the moral hazard problem.
   3. prevent bank panics.
   4. put savings and loan associations on an equal competitive footing with commercial banks.

    

   Possible levels of domestic output	Consumption
   and income (GDP = DI)
   $320	$320
   330	327
   340	334
   350	341
   360	348
   370	355
   380	362

   Table 1

2. According to Keynesian theory, the multiplier is the amount by which a change in autonomous expenditure is multiplied to calculate the change in real Gross Domestic Product. The multiplier is calculated with the following formula: 1/(1-c) where c is the marginal propensity to consume. Calculate the multiplier using information in Table 1 above
   1. 3.
   2. 30.
   3. 3 1/3.
   4. 7.
   5. 4.

    

   

   Figure 1

3. In Figure 1, S1, S2, and S3 are three possible saving schedules and Ig1 and Ig2 are two possible investment schedules. The marginal propensities to save embodied in saving schedules S1, S2 and S3 respectively are
   1. .5, .2, and .1.
   2. .5, .4, and .2.
   3. .8, .6, and .2.
   4. .4, .3, and .1.

    

4. A basic criticism of supply-side economics is that:
   1. empirical research clearly shows that incentives to work and invest vary directly with marginal tax rates.
   2. lower taxes will increase aggregate supply much more than they will increase aggregate demand.
   3. lower taxes will increase aggregate demand much more than they will increase aggregate supply.
   4. d. higher taxes will reduce incentives to work, invest, and innovate.

    

5. When the receipts given by goldsmiths to depositors were used to make purchases
   1. the international gold standard was created.
   2. the demand for silver increased.
   3. the receipts became in effect paper money.
   4. the dollar appreciated relative to the pound.

    

6. The reserves of a commercial bank consist of
   1. the amount of money market funds it holds.
   2. deposits at the Federal Reserve Bank and vault cash.
   3. government bonds which the bank holds.
   4. the bank's net worth.

    

7. A $175 price tag on a cashmere sweater in a department store window is an example of money functioning as a
   1. measure of value.
   2. standard of deferred payment.
   3. store of value.
   4. medium of exchange.

    

8. If the Fed wants to lower the federal funds rate, it would most likely
   1. increase the discount rate.
   2. increase the reserve ratio.
   3. buy government securities in the open market.
   4. sell government securities in the open market.

    

9. The velocity of money is equal to
   1. 1/Marginal Propensity to Save.
   2. 1/reserve ratio.
   3. Gross Domestic Product/Price level.
   4. Money supply/Gross Domestic Product.
   5. none of the above.

    

10. Which of the following would be counted in calculating GDP?
    1. Wheat flour sold to a bakery.
    2. Taconite pellets shipped from Duluth to a Cleveland steel mill.
    3. Engine blocks produced in a foundry to put in new cars.
    4. All of the above would be counted.
    5. None of the above would be counted.

     

11. Which of the following is likely to lead to a low level of investment?
    1. optimistic expectations.
    2. low interest rates.
    3. substantial excess capacity.
    4. rapid growth of output.

     

12. Other things being equal and beginning with a balanced budget, which of the following policies will tend to have the most contractionary effect on the economy?
    1. Continue a balanced budget.
    2. A budget surplus held as an idle money balance.
    3. A budget deficit financed by creating new money.
    4. A budget surplus used for debt retirement.
    5. A budget deficit financed by borrowing from the public.

     

13. Suppose the government publicly states that it is committed to ending inflation at any cost. What is most likely to happen to short term investment and why?
    1. It will fall, as firms become cautious about the future.
    2. It will remain unchanged, because this will not affect expectations.
    3. It will increase slightly, because firms can expect aggregate demand to grow slowly.
    4. It will increase rapidly, because this will boost business confidence.

     

14. If Jane purchased $10,000 worth of goods and services in 1990, how much would she need to buy similar goods and services in 1998?
    1. $12,479
    2. $8,013
    3. $10,702
    4. $9,344
    5. $13,070

     

15. Which of the following statements is correct?
    1. Interest rates and bond prices vary directly.
    2. Interest rates and bond prices vary inversely.
    3. Interest rates and bond prices are unrelated.
    4. Interest rates and bond prices vary directly during inflation and inversely during recessions.

Macroeconomics Test
Microeconomics Test
International Economics Test
Economic Applications and Current Events Test

Economics Challenge