CBE Macroeconomics 2

Question 1

Which component of GDP is typically the most volatile over the business cycle?

Accepted Answer

Business investment

Answer

Business investment (especially inventories and capital expenditures) fluctuates far more than consumption or government spending across business cycles.

Question 2

The natural rate of unemployment includes which of the following?

Accepted Answer

Frictional and structural unemployment

Answer

The natural rate consists of frictional unemployment (job search) and structural unemployment (skill mismatches), excluding cyclical unemployment caused by recessions.

Question 3

If the MPC (marginal propensity to consume) is 0.75, what is the simple spending multiplier?

Accepted Answer

4.0

Answer

The simple multiplier = 1/(1-MPC) = 1/(1-0.75) = 1/0.25 = 4.0.

Question 4

Which measure of money supply includes savings deposits, money market accounts, and small CDs in addition to M1?

Accepted Answer

M2

Answer

M2 includes all of M1 (currency, demand deposits) plus savings deposits, money market mutual funds, and small-denomination time deposits.

Question 5

The IS curve slopes downward because:

Accepted Answer

Higher interest rates increase savings and reduce investment

Answer

As interest rates rise, investment falls and saving becomes more attractive, reducing equilibrium output—giving the IS curve its negative slope.

(CBE) Certified Business Economist Practice Test

(CBE) Certified Business Economist Practice Test

CBE Macroeconomics 2