1998 Economics Challenge Play-off
MACROECONOMICS
Round I

1. Crowding out can best be defined as
   1. government budget deficits causing a drop in interest rates, which reduces private saving.
   2. higher interest rates caused by restrictive monetary policy, which reduces investment.
   3. higher interest rates caused by restrictive monetary policy, which increases saving and reduces consumption spending.
   4. lower interest rates caused by a drop in inflation, which reduces consumption spending.
   5. government budget deficits causing a drop in private borrowings because of higher interest rates.

2. A run on a bank may occur if
   1. depositors find out about some new wrinkles in tax-free savings accounts.
   2. depositors lose confidence in the bank and attempt to withdraw their money.
   3. required reserves are raised.
   4. interest rates go to high levels.
   5. All of the above are correct.

3. Which of the following would be a good candidate for a leading indicator?
   1. a change in inventories
   2. new orders for consumer goods
   3. building permits for private housing
   4. All of the above are correct.

4. In 1989 the consumer price index stood at 125 (1982 = 100), compared with 120 in 1988. What was the inflation rate between 1988 and 1989?
   1. about 4%
   2. about 5%
   3. about 25%
   4. about 125%

5. In periods of generally falling prices,
   1. real GDP will grow slower than nominal GDP.
   2. real GDP will grow faster than nominal GDP.
   3. real GDP will grow as fast as nominal GDP.
   4. There is no generalization that can be made regarding real and nominal GDP.

6. Persons who do not have jobs and who do not look for work are considered
   1. unemployed.
   2. out of the labor force.
   3. underemployed
   4. part of the underground economy.

7. One difference between the items in M1 and those that are added to compute M2 is that
   1. items in M1 are better stores of value than those that are added to compute M2.
   2. items in M1 are cash or more easily converted into cash than the other items.
   3. items in M1 are less “liquid” than those that are added to compute M2.
   4. items in M1 are larger in size than those that are added to compute M2.
   5. All of the above are correct.

8. Waldo Miser digs up $100,000 cash in a buried box and opens a checking account. Assuming banks must keep 20 percent of deposits as reserves, the maximum eventual increase in bank deposits will be
   1. $100,000.
   2. $120,000.
   3. $180,000.
   4. $400,000.
   5. $500,000.

9. The short-term effect of an unexpected sale of bonds by the Fed is
   1. an increase in interest rates, a rise in investment and a rise in equilibrium GDP.
   2. an increase in interest rates, a drop in investment and a drop in equilibrium GDP.
   3. a decrease in interest rates, a rise in investment and a rise in equilibrium GDP.
   4. a decrease in interest rates, a drop in investment and a drop in equilibrium GDP.

   

10. Which of the following statements about these Lorenz curves in the figure above is correct?
    1. Line C shows the most unequally distributed income.
    2. Line B shows a more equal income distribution than line A does.
    3. Line A shows the most unequally distributed income.
    4. Only b and c are correct.

11. Eckstein has lost her job in a Massachusetts textile plant because of import competition. She intends to take a short course in electronics and move to California where she anticipates new jobs will be available. We can say that Eckstein is faced with
    1. secular unemployment.
    2. cyclical unemployment.
    3. structural unemployment.
    4. frictional unemployment.

12. In the second quarter of 1985, the following values were observed: real GDP = $1,671.6 billion, GDP deflator = 230.62, and M1 = 582.6. What was the nominal GDP?
    1. $3,855 billion
    2. $724 billion
    3. $2,253 billion
    4. $1,901 billion
    5. It can't be determined.

13. If the Federal Reserve should be increasing its holdings of federal bonds at the same time the federal deficit is increasing,
    1. the Federal Reserve and the Treasury are coordinating monetary and fiscal policy, as required by the Federal Reserve Act of 1913.
    2. the Fed is trying to push up interest rates.
    3. the debt is being monetized.
    4. crowding out is more likely to occur.

14. If at current interest rates the quantity of money demanded exceeds the money supply, we would expect the interest rate to
    1. fall, causing households and businesses to hold less money.
    2. rise, causing households and businesses to hold less money.
    3. rise, causing households and businesses to hold more money.
    4. fall, causing households and businesses to hold more money.
       
       

    
    

15. Referring to the figure above, rational expectations theory would contend that a shift in aggregate demand from AD₁ to AD₂ would
    1. move the economy from a to b to c.
    2. move the economy directly from a to c.
    3. move the economy from a to new equilibrium at b.
    4. do none of the above.

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

Economics Challenge