- B.When inflation is unanticipated, borrowers benefit because the value of what they owe is actually decreasing
as a result of inflation. Inflation decreases purchasing power and lowers the value of currency. If a borrower is
lent money and the inflation rate increases, the payback amount for the borrower remains the same; however, the
ability to obtain the amount becomes easier. - E.If there is an increase in the labor force, it becomes more difficult to reduce the unemployment rate because
more jobs have to be created to satisfy the increased labor force. As the number of labor force participants grows,
the number of jobs has to increase with it or we will experience an increase in unemployment. - D. According to Keynesians, macroeconomic equilibrium can occur at less than full employment. Where short-
run aggregate supply meets aggregate demand, we have macroeconomic equilibrium. - A.When government spending has no impact on GDP, one reason could be that the price level is rising. This
means that the economy has reached its productive capacity and that GDP can no longer increase. All that’s left
for producers to do is to increase the price level. - C.According to Keynesians, the most important factor of savings and consumption is the level of income for
individuals. The more people receive in income, the more they spend and save. The marginal propensity to
consume and save rises as income climbs. Consumption and savings are dependent on the level of income. - D. Each plot point on the production possibilities graph represents an opportunity cost. As you move from one
plot point to another, you have to give up one good for another. The production possibilities graph is designed to
illustrate available resources and describe their allocative possibilities. - B.Point F on the graph represents underutilization. Underutilization occurs when a country is producing inside
the production possibilities curve. Any point inside the curve illustrates a country that is not being efficient with
its available resources. The production possibilities curve represents allocative efficiency; any point on the curve
represents efficient use of resources. - C.A production possibilities curve illustrates the various combinations of resources that can be applied or
allocated. The combination of the vertical and horizontal axis is the sum of resources in the scenario. The
production possibilities curve illustrates the allocative efficiency of the goods on the horizontal and vertical axes. - B.Full employment is located in range 2. Range 2 has a slight increase in price level (growth) and is the
optimum level of performance for applied resources in the economy. In range 2, the economy is at or near
productive capacity, meaning that resources are being used efficiently for production. - C.The graph illustrates the economy’s aggregate demand in range 1. In range 1, there are high levels of
unemployment and any increase in spending can satisfy aggregate demand without any pressure on the price
level. Range 1 illustrates an economy that is lacking spending and disposable income. - D. Increased spending and decreased taxes are the fiscal policy options a Keynesian would recommend for an
economy that is lacking growth. Spending helps increase employment whereas lower taxes increase disposable
income and allow firms to produce at lower costs. - C.Education is considered human capital. Human capital helps the economy in the long run because the labor
force becomes more productive with increased education. When workers are educated, skills become more
advanced and firms can produce more goods and services and increase quality. - C.An increase in the money supply results in a decline in interest rates. Lenders will have more money to lend,
and to make it more enticing for consumers to borrow, they will lower interest rates. The relationship between
money supply and interest rates is an inverse one. - D. If the economy experiences high levels of inflation, the appropriate monetary policy is to sell open-market
securities in order to decrease the money supply. When the money supply decreases, the price level becomes
stabilized.
Macroeconomics Full-Length Practice Test 2Macroeconomics Full-Length
Practice Test 2