EC 112 Final Ch. 9-13

Which of the following is NOT a function of money? a. A hedge against inflation. b. A unit of account. c. A store of value. d. A medium of exchange. e. All of these are functions of money.

A

Which of the following is the most liquid? a. A $20 bill in your pocket b. A gold necklace c. Three shares of Microsoft stock d. A certificate of deposit (CD) in your bank. e. A new Toyota Prius automobile

A

Which of the following was one of the major sources of federal revenues in 2017? a. Personal income taxes b. Corporate income taxes c. Excise and estate taxes d. Both A and B e. None of the above

A

Which of these is (was) NOT a financial intermediary? a. The New York Stock Exchange b. Bank of America c. MetLife Insurance Company d. Washington Mutual Savings and Loan e. All of these are (were) financial intermediaries.

A

An open market purchase by the Fed a. increases bank reserves, loans, and deposits, and thus increases the money supply. b. decreases bank reserves, loans, and deposits, and thus decreases the money supply. c. increases bank reserves, loans, and deposits, and thus decreases the money supply. d. decreases bank reserves, loans, and deposits, and thus increases the money supply. e. None of the above.

A

Government outlays ... a. are the sum of government spending and government transfer payments. b. are always greater than government revenues c. must, by law, exactly equal government revenues d. are generally less than government revenues e. none of these

A

Speculative bubbles ... a. generally form for psychological and economic reasons. b. are an important source of economic growth. c. generally occur due to a general lack of liquidity. d. are generally associated with tight credit conditions. e. None of these statements is true.

A

Suppose in a simple economy with no foreign sector, the mpc is equal to 0.75. How much government spending (ΔG) would be needed to raise output by 100 million? a. 25 million b. 33.3 million c. 75 million d. 400 million e. None of the above

A

Suppose the U.S. Congress passes a stimulus package with tax rebates for all qualifying U.S. households. Assume everything else remains unchanged. How would the impact be illustrated with the AS/AD model? a. AD shifts right. b. AD shifts left. c. AS and maximum capacity shift right/down. d. AS and maximum capacity shift left/up. e. AS, AD and maximum capacity both shift left.

A

The A1 appendix for this chapter ... a. focuses on the use of lump-sum taxes b. introduces the importance of the IRS for conducting fiscal policy c. derives the balanced-budget multiplier d. suggests that the multiplier for a change in taxes is larger than for a change in government spending e. none of these statements are accurate

A

The rate determined in the private market for overnight loans of reserves among banks is called the a. federal funds rate b. discount rate c. prime rate d. interest rate e. None of the above.

A

What did the Federal Reserve do to expand the economy during the 2000-04 period? a. It pushed down the federal funds rate. b. It raised the reserve requirement ratio. c. It raised the discount rate. d. It sold bonds on the open market. e. None of the above.

A

What happens to bond prices and their interest rate when the Fed makes a sizeable open market purchase? a. The price of bonds rises and their interest rate falls. b. The price of bonds falls and their interest rate rises. c. The price of bonds rises and their interest rate rises. d. The price of bonds falls and their interest rate falls. e. The price of bonds and their interest rate remain unchanged.

A

Which of the following best describes the relationship between the mpc and the multiplier? a. The higher the mpc, the higher the multiplier. b. The higher the mpc, the lower the multiplier. c. The lower the mpc, the higher the multiplier. d. There is no relationship between the mpc and the multiplier. e. There is a one to one relationship between the mpc and the multiplier - the multiplier will increase by the same amount as the increase in the mpc.

A The higher the mpc, the higher the multiplier

Which of the following best describes the meaning of aggregate expenditure in the traditional macro model (with no government and a closed economy)? a. The amount firms and households intend to spend on consumption and investment. b. The actual level of spending done in the economy by firms and households on consumption and investment. c. The summing up of all the spending on goods and services in the economy by firms and households. d. The average level of demand for all goods and services in the economy by firms and households. e. The average level of spending on all goods and services in the economy by firms and households.

A. the amount firms and households intend to spend on consumption and investment

The President drafts a budget proposal with new tax cuts and increases in government spending, and has it passed by Congress. This would be an example of: a. Automatic stabilizers b. Discretionary policy c. Contractionary fiscal policy d. Supply side policy e. None of the above.

B

A hedge fund is an example of ... a. a financial intermediary b. a nonbank financial institution c. an investment bank d. a pension fund e. None of these.

B

During a liquidity trap, a. as the Fed increases the money supply, the interest rate falls significantly. b. increases in the money supply have no effect on the interest rate, because the money demand curve has become perfectly horizontal. c. as the Fed increases the money supply, the interest rate rises substantially. d. once the Fed increases the money supply, it can no longer control it, which leads to hyperinflation. e. monetary policy is highly effective in expanding the economy

B

If the Fed pursues contractionary monetary policy, what are the effects in the medium run (once people's inflation expectations have had time to adapt)? a. AD shifts down/left. b. AD shifts down/left and AS shifts down. c. AD shifts up/right. d. AD shifts up/right and AS shifts up. e. AD shifts down/left and AS shifts up.

B

Procyclical policy ... a. refers to the use of fiscal policy to improve the performance of the U.S. economy b. refers to state/local governments tendency to exacerbate the business cycle. c. refers to Federal Reserve policy designed to minimize economic downturns d. refers to Chamber of Commerce efforts to encourage households to shop locally e. none of these are descriptions of procyclical policy

B

Suppose Tabatha takes $500 from her savings account and deposits it in her checking account. What is the change in M1 and M2? a. M1 increases and M2 decreases b. M1 increases and M2 remains unchanged c. M1 and M2 both increase d. M2 increases and M1 remains unchanged e. M1 and M2 both remain unchanged

B

Suppose in a simple economy with no foreign sector, the mpc is equal to 0.8. If the government increased government spending by $30 million, and it simultaneously raised taxes by $30 million, how much will be the change in output (ΔY)? a. Output will increase by $15 million b. Output will increase by $30 million c. There will be no change in output d. Output will decrease by $30 million e. None of the above

B

Suppose in a simple economy with no foreign sector, the mpc is equal to 0.9. How much of a lump sum tax (ΔT) would be needed to raise output by 100 million? a. 10 million b. 11.1 million c. 33.3 million d. 100 million e. None of the above

B

Suppose the Fed makes an open market purchase of $3 million. Assume that the money multiplier equals 2. What is the change in the money supply? a. The money supply has increased by $1.5 million. b. The money supply has increased by $6 million. c. The money supply had decreased by $1.5 million. d. The money supply has decreased by $6 million. e. None of the above.

B

The historical evidence of the supply side tax cuts (of the Reagan administration in the 1980s and Bush in the 2000s) is that: a. they were successful in increasing output, increasing tax revenues and lowering deficits. b. they led to lower tax revenues and higher deficits. c. they left output, tax revenues and deficits unchanged. d. while the Reagan tax cuts were successful in increasing tax revenues and lowering deficits, those of the Bush administration were not. e. None of the above.

B

What is the shape of the AS curve in the full employment range? a. Flat and horizontal b. Gently rising upwards c. Steeply rising upwards d. Completely vertical e. Downward sloping

B

Which of the following is not a component of aggregate expenditure? a. consumption b. unsold inventories c. intended investment d. government spending e. all of these are components of aggregate expenditure

B

Which of the following is not one of the functions of the Federal Reserve? a. Performing banking functions for private banks b. Issuing Treasury bills and bonds c. Regulating banks d. Promoting confidence and stability in the financial sector e. Conducting monetary policy.

B

Which of the following is not one of the potential problems of monetary policy? a. long "outside lags" b. long "inside lags" c. disagreement over inflation and unemployment targets d. liquidity traps e. reluctant lenders and reluctant borrowers

B

Which of these would be an INCORRECT use a balance sheet for a private bank? a. A "government bonds" entry listed as an asset. b. A "deposits" entry listed as a liability. c. A "loans" entry listed as an asset. d. Both (b) and (c) are incorrect. e. All three of (a), (b), AND (c) are correct entries.

B

In the figure above, what is the level of autonomous consumption? a. 0 b. 20 c. 100 d. 340 e. 400

B 20

Unlike the Classical economists, Keynes thought that after a sudden fall in investment spending: a. the economy would quickly return to full-employment equilibrium. b. the economy could contract by even more than the initial fall in spending, and get stuck there. c. the market mechanism would automatically pull an economy out of a recession. d. a rise in consumption spending would counteract the fall in investment spending, keeping the economy at full employment. e. none of the above

B the economy could contract by even more than the initial fall in spending and get stuck there

If aggregate expenditure falls below aggregate output (AE<Y), according to the Keynesian model, what happens to unintended inventories? a. There is a depletion of unintended inventories. b. There is an accumulation of unintended inventories. c. Unintended inventories remain unchanged. d. Unintended inventories fall to zero (0). e. None of the above.

B there is an accumulation of unintended inventories

When is inflation and unemployment most likely to be a problem? a. Inflation and unemployment will be a problem in the grey area representing the range of full employment output. b. Inflation will be a problem during the peak of an expansion, and unemployment will be a problem during the trough of the contraction. c. Inflation will be a problem during the trough of the contraction, and unemployment will be a problem during the peak of the expansion. d. Inflation will be a problem during both the peak and the trough of the business cycle. e. Unemployment will be a problem during both the peak and trough of the business cycle.

B. Inflation will be a problem during the peak of an expansion and unemployment will be a problem during the trough of the contraction

Keeping the economy balanced with acceptable levels of unemployment and inflation is the key aspect of the goal of? A) growth in living standards B) stabilization C) Sustainability D) Trade Expansion E) Equal income distribution

B. Stabilization

Two stylized facts of the business cycle are that: a. during an economic contraction, unemployment falls and inflation rises, while during an expansion, unemployment rises and inflation falls. b. during an economic contraction, unemployment rises and inflation falls, while during an expansion, unemployment falls and inflation rises. c. during an economic contraction, both unemployment and inflation fall, while during an expansion, both unemployment and inflation rise. d. during an economic contraction, both unemployment and inflation rise, while during an expansion, both unemployment and inflation fall. e. none of the above

B. during an economic contraction, unemployment rises and inflation falls, while during a expansion, unemployment falls and inflation rises

"Fiat money" refers to ... a. Older U.S. coins that contain a high (90%) silver content. b. A creative alternative to modern money (such as cigarettes in a prisoner of war camp.) c. Money that is valuable because a government says it has value. d. Paper money backed by gold or

C

Fiscal policy refers to ... a. control of the money supply b. decisions to alter market interest rates c. government spending and taxation decisions d. control of the producer price index e. none of these

C

Hyperinflation ... a. is often defined as any annual inflation rate higher than 10 percent. b. describes the German economy after World War II. c. can be become so severe that people resort to barter. d. means that people tend to save money much more aggressively. e. none of these statements is accurate.

C

In the figure below, which of the following could explain the shift downwards of the AS curve? a. An increase in inflationary expectations. b. An increase in oil prices. c. A fall in inflationary expectations. d. An increase in government spending. e. None of the above.

C

In the figure below, which of the following events could explain the upward shift of the AS curve, and the leftward shift of the AD curve? a. A tax cut. b. An increase in government spending. c. An increase in inflationary expectations, followed by a contractionary fiscal policy. d. A decrease in inflationary expectations, followed by and expansionary fiscal policy. e. None of the above.

C

Table 10.2 (Different Multiplier Effects) suggests that ... a. making the Bush income tax cuts permanent would have the biggest tax cut impact b. a payroll tax holiday is not a very effective tax cut strategy c. temporarily increasing food stamps is more effective than any permanent tax cut d. cutting the corporate tax rate has a bigger impact than ANY other tax cut e. none of these statements are accurate

C

What is the difference between the nominal and real interest rate? a. The nominal interest rate is the real interest rate minus the rate of inflation. b. The real interest rate is the nominal rate plus the rate of inflation. c. The real interest rate is the nominal rate minus the rate of inflation. d. The nominal interest rate is the real interest rate plus the rate of inflation. e. There is no difference between real and nominal interest rates.

C

Which of the following best describes the sequence of events in the conduct of contractionary monetary policy using open market operations (in an economy with low inflation and a stable banking system)? a. The Fed raises the interest rate, which leads to a decrease in intended investment spending and a decrease in the supply of federal funds, which decreases aggregate expenditure and output. b. The Fed decreases intended investment spending, which leads to a decrease in aggregate expenditure and output, and a decrease in the supply of federal funds and the interest rate. c. The Fed sells bonds, which decreases the supply of federal funds, which raises the interest rate, which leads to a decrease in intended investment spending, aggregate expenditure and output. d. The Fed buys bonds, which increases the supply of federal funds, which lowers the interest rate, and leads to a decrease in intended investment spending and aggregate expenditure and output. e. The Fed lowers the interest rate, which leads to an increase in intended investment spending and an increase in the supply of federal funds, which decreases aggregate expenditure and output.

C

Which of the following is not a reason why an unexpected episode of inflation is harmful to an economy? a. It wipes out the value of people's savings. b. It hurts people on fixed incomes, such as retired people who receive non-indexed pensions. c. It redistributes wealth from debtors to creditors. d. It creates menu costs. e. It creates uncertainty, which makes financial planning for the future more difficult.

C

Which of the following is not one of the Fed's monetary policy tools? a. Buying bonds on the open market b. Selling bonds on the open market c. Raising or lowering taxes d. Raising or lowering the reserve requirement ratio e. Raising or lowering the discount rate

C

Which of the following was the largest category of government spending in 2017? a. Social programs, such as welfare b. Defense spending c. Social security, Medicare, and retirement d. Net interest on the debt e. None of the above

C

Which of the following would cause the AD curve to shift to the right? a. The government raises income taxes. b. Firms become pessimistic about the future growth of GDP, sales, and profits. c. The Fed shifts to a more expansionary monetary policy. d. Workers build expectations of higher inflation into their contracts. e. None of the above.

C

Which of these is NOT an example of leverage? a. An investment bank increases its liabilities to speculate on derivatives. b. A local entrepreneur borrows heavily to finance the cost of starting a new business. c. General Motors issues new stock to raise funds for a new factory. d. Microsoft issues commercial bonds to finance production of a new product. e. All of these are examples of leverage.

C

Which of these sequences best captures the liquidity continuum? a. Checking accounts, precious metal, real estate, share of stock b. Checking accounts, precious metal, share of stock, real estate c. Checking accounts, share of stock, precious metal, real estate d. Checking accounts, share of stock, real estate, precious metal e. Precious metal, checking accounts, share of stock, real estate

C

Which theory (or theories) assumes that the velocity of money is not constant, in the quantity equation M × V = P × Y? a. Classical theory b. Monetarist theory c. Keynesian-influenced theories d. The theory expounded by Milton Friedman and Anna Jacobson Schwartz e. None of the above

C

Which of the following expresses the value of the income/spending multiplier (in a simple closed economy with no government)? a. 1/mpc b. 1/(1+mpc) c. 1/(1-mpc) d. 1+mpc e. 1-mpc

C 1/(1-mpc)

Assume a simple, closed economy with no government. The marginal propensity to consume (mpc) = 0.75. Then the value of the multiplier is: a. 1.34 b. 0.57 c. 4 d. 1.75 e. 0.25

C 4

In the figure above, when income = 400, what is the level of saving? a. 400 b. 340 c. 60 d. 20 e. 0

C 60

Which of the following will not cause a shift in the investment function (or schedule) in the Keynesian model? a. A change in investors' confidence and expectations of the future b. A change in the interest rate c. A change in household disposable income d. A change in prices of investment goods e. A change in the willingness of lenders to lend

C A change in household disposable income

What is the goal of stabilization policy? a. To keep the economy as close to the peak as possible, where unemployment remains very low. b. To keep the economy as close to the trough as possible, where inflation remains low. c. To keep the economy in the grey area, to avoid the threats of both excessive unemployment and inflation. d. To enable the economy to move freely from peak to trough. e. None of the above.

C. To keep the economy in the grey area, to avoid the threats of both excessive unemployment and inflation

A liquidity trap refers to a situation when a. The economy is trapped by a flood of money on the market. b. A rise in interest rates causes people to want to hold less money. c. Households' wealth becomes trapped in assets that cannot be easily exchanged into money. d. The general public has a strong preference for holding the most liquid asset, money. e. None of the above.

D

According to classical theory, the aggregate supply (AS) curve is: a. perfectly horizontal b. gently upward sloping c. flat at first, and then rises steeply d. perfectly vertical e. downward sloping

D

Crowding out refers to ... a. intended investment squeezing unsold inventories b. excess consumer spending competing with foreign demand for U.S. goods c. the demand for exports making U.S. goods for expensive for consumers d. government borrowing reducing the availability of private capital e. none of these

D

During what period of time did the U.S. experience federal government budget surpluses? a. 1980 - 1988 b. 1989 - 1992 c. 1993 - 1997 d. 1998 - 2001 e. 2002 - 2008

D

For the next question, consider the following choices: I. the Classical theory II. Monetarism III. Keynesian-oriented theories Which of the above theories would be in agreement with the following statement? "Inflation is always and everywhere a monetary phenomenon." a. I b. II c. III d. I and II e. I, II, and III

D

For the next question, consider the following choices: I. the Classical theory II. Monetarism III. Keynesian-oriented theories Which of the above theories would be in agreement with the following statement? "The Fed should not use interventionist monetary policy, but should adopt a money supply rule such that the money supply is only allowed to grow at a steady rate -- the same rate as real GDP." a. I b. II c. III d. I and II e. I, II, and III

D

In the figure below, which of the following events could explain the shift of the AD curve to the right? a. An increase in government spending. b. A tax increase. c. An increase in consumer and investor confidence. d. (a) and (c) only. e. (b) and (c) only.

D

Suppose a war destroys much of a nation's infrastructure. Assume everything else remains unchanged. How would the impact be illustrated with the AS/AD model? a. AD shifts right/up. b. AD shifts left/down. c. AS and maximum capacity shift right. d. AS and maximum capacity shift left. e. AS, AD and maximum capacity remain unchanged.

D

Suppose the Fed buys $15 million worth of government bonds from Richland bank. Which of the following is Richland Bank most likely to do? a. Reduce its outstanding loans by $15 million. b. Borrow more reserves at the "discount window" c. Borrow more reserves from other banks. d. Make new loans totaling about $15 million. e. None of the above

D

Suppose the Fed makes an open market sale of $8 million in bonds. Assume the money multiplier is equal to 2. What is the change in the money supply? a. The money supply has increased by $4 million. b. The money supply has decreased by $4 million. c. The money supply has increased by $16 million. d. The money supply has decreased by $16 million. e. None of the above.

D

Suppose the Fed wanted to engage in an expansionary monetary policy. Which of the following should it do? a. Sell bonds on the open market. b. Increase the reserve requirement ratio. c. Increase the discount rate. d. Buy bonds on the open market. e. Lower taxes.

D

Suppose we observe an increase in inflation and a decrease in output. Which of the following could be the cause? a. The Fed has chosen a lower inflation target. b. Good weather has produced a bumper harvest. c. An increase in consumer confidence has boosted consumption spending d. The price of a key input, oil, has increased. e. None of the above.

D

The Glass-Steagall Act ... a. was passed in 2009 to prevent future financial crises. b. was strengthened in 1999 to increase financial regulation. c. was passed in the late 1980s in response to the Savings & Loan crisis. d. was passed in the 1930s to increase financial regulation. e. None of these is correct.

D

The macroeconomic AS/AD model illustrates the following points about the economy: a. Expansionary fiscal and monetary policies tend to push the economy toward higher output. b. Contractionary fiscal and monetary policies tend to push the economy toward higher output. c. Adverse supply shocks lower output and raise inflation. d. (a) and (c) only. e. (b) and (c) only.

D

What could cause both the AS curve and maximum capacity to shift to the right? a. A decrease in labor productivity. b. A decrease in inflationary expectations. c. A cut in income taxes. d. The distribution of high-speed internet access to rural areas in the U.S. e. None of the above.

D

Which of the following is not an example of a government outlay? a. Government spending on a national health care system b. Government spending on light rail systems and bicycle paths c. Housing subsidies for low-income households d. Tax cuts for wind and solar energy producers e. Child care vouchers for working single parents

D

Which of the following is not an example of a transfer payment? a. Welfare payments to firms or individuals b. Social Security payments c. Unemployment compensation d. A corporate tax cut e. Payments of interest to holders of government bonds.

D

Which of the following is not included as "money" in M1? a. Currency in circulation b. Checkable deposits c. Traveler's checks d. The use of a credit card e. The use of debit cards that take funds from a checking account

D

Which of the following is not one of the characteristics necessary for commodity money to be used as money? a. It must be durable. b. It must be portable. c. It must be generally acceptable. d. It must be differentiated. e. It must be scarce.

D

Which of the following was responsible for putting the budget back into deficit in 2001? a. The recession that started in the Spring of 2001. b. The 2001 Bush tax cuts c. The increased government spending of the Bush administration. d. Both A and B. e. None of the above.

D

Which of the following would not cause a shift in both the AS curve and maximum capacity output? a. A natural occurrence, such as a bumper crop in agriculture. b. An increase in labor productivity. c. An increase in the price of a key input of production, such as oil. d. A change in inflation that changes people's expectations of inflation in the medium run. e. None of the above.

D

Which of the following would not cause a shift in the AS curve? a. A natural occurrence, such as a bumper crop in agriculture. b. An increase in labor productivity. c. An increase in a key input of production, such as oil prices. d. A change in investment spending. e. A change in inflation that changes people's expectations of inflation in the medium run.

D

Which of the following would not cause a shift in the aggregate demand (AD) curve? a. The government cuts taxes. b. Expectations of a growing economy lift business confidence and investment. c. The Fed chooses a more expansionary monetary policy. d. Technological progress improves productivity. e. Consumers increase autonomous spending.

D

Assume a simple, closed economy with no government. The marginal propensity to consume (mpc) = 0.8. Assume there's a sudden drop in investment spending by 100 million. By how much will output eventually fall? a. 20 million b. 100 million c. 125 million d. 500 million e. None of the above.

D 500 million

Which of the following factors will not cause a shift in the consumption function (or schedule)? a. Wealth b. Consumer confidence c. Cultural attitudes toward spending and saving d. A change in income e. Changes in the distribution of income

D Changes in the distribution income

In the Keynesian model: a. Households only save and lend, and do not borrow. b. Consumption spending is more sensitive to the interest rate than to income. c. Investment spending, especially in a recession, is highly sensitive to the interest rate. d. Investment spending is highly sensitive to investors' confidence and expectations of future sales and profits (or "animal spirits"). e. All of the above

D investment spending is highly sensitive to investors' confidence and expectations of future sales profits

According to the textbook, why is deflation harmful to an economy? a. It redistributes wealth from debtors to creditors. b. It creates menu costs. c. It creates uncertainty, which makes financial planning for the future more difficult. d. It can lead to cutbacks in borrowing and spending, which can slow down the economy. e. All of the above.

E

Nonbank institutions ... a. have been growing in importance in our financial system. b. often provide much more attractive alternatives to traditional savings accounts. c. are typically subject to less government regulation than traditional banks. d. include pension funds and insurance companies. e. All of these statements are accurate.

E

The Obama Stimulus Program ... a. is also known as the "American Recovery and Reinvestment Act." b. added more than three million jobs according to the Congressional Budget Office c. probably averted a 21st century "Great Depression" according to some economists d. amounted to a major expansionary fiscal policy e. all of these statements are accurate

E

When credit rationing occurs, a. banks keep their interest rates below what the market would bear, and deny loans to some potential borrowers. b. Banks lend to only those customers deemed to be creditworthy and less risky. c. Smaller and less well-known firms may be more disadvantaged than bigger firms with well-established reputations. d. The Fed's intended monetary policy actions may be limited or ineffective. e. All of the above.

E

Which of the following are current schools of macroeconomics (see Appendix)? a. rational expectations school b. neoclassical synthesis c. New Keynesian macroeconomics d. post-Keynesian macroeconomics e. All of the above are current schools of macroeconomics

E

Which of the following characterizes classical monetary theory? a. Output is assumed to be always constant at its full-employment level. b. Changes in the money supply have no effect on the level of real output, and thus money is assumed to be neutral. c. An increase in the money supply can only lead to inflation. d. The Fed should adopt a money supply rule, allowing the money supply to grow only at the same rate as real GDP. e. All of the above.

E

Which of the following is NOT a component of the M2 definition of the money supply? a. Certificates of deposit b. Checking account deposits c. Retail money market funds d. Travelers checks e. All of these are components of the M2 definition of the money supply.

E

Which of the following is NOT a type of money described in the textbook? a. Fishhooks as money. b. Fiat money. c. Commodity money. d. Silver coins as money. e. All of these are types described in the text.

E

Which of the following is not an example of an inside time lag? a. data lag b. recognition lag c. legislative lag d. transmission lag e. response lag

E

Which of the following is not one of the five regions of the aggregate supply curve diagram? a. Maximum capacity output b. Wage-price spiral c. Full employment range of output d. Unemployment e. Net exports

E

Which of the following statements characterizes Keynesian theory? a. Individuals are not always rational, optimizing agents, but instead are subject to waves of optimism or pessimism. b. The "animal spirits" of investors can lead to big fluctuations in the business cycle. c. The AD curve is perpetually on the move over the peaks and troughs of the business cycle. d. Governments should intervene to smooth out the peaks and troughs of the business cycle and keep the AD curve more stable. e. All of the above.

E

Which of the following statements does not characterize classical theory? a. Markets are self-adjusting, and the economy tends to function smoothly. b. Individuals are rational, optimizing agents, who quickly respond to market conditions. c. Output always remains at its full employment level. d. Fiscal and monetary expansion tends to lead to higher inflation. e. The government should intervene to keep market conditions favorable for corporations to maximize profits.

E

Which of these factors explain why the AD curve is downward-sloping? a. With higher inflation, consumers real income and wealth is less and they consume less, resulting in lower output. b. With higher inflation, the real money supply will be lower, resulting in lower output. c. Because with higher inflation, exports will be more expensive, resulting in less net exports and lower output. d. As inflation increases, the Fed will raise interest rates and slow down the economy, resulting in lower output. e. All of the above.

E

Which of these is NOT an example of a bank type described in the textbook? a. Goldman Sachs investment bank b. Washington Mutual Savings and Loan c. Service Federal Credit Union d. The Federal Reserve e. All of these are examples of bank types described in the textbook.

E

In the classical model: a. flexible markets will keep the economy at a full-employment level of spending and output. b. both households' saving activity and firms' investment activity are quite sensitive to changes in the interest rate. c. adjustments in the interest rates quickly correct any imbalances between saving and investment. d. a sudden fall in investment spending would cause a fall in the interest rate, which would dampen saving and stimulate consumption, quickly returning the economy to full employment. e. all of the above.

E All of the above

The marginal propensity to consume (mpc): a. stands for the portion of every additional dollar of aggregate income that goes to consumption spending. b. is equal to the change in consumption (C) divided by the change in aggregate income (Y). c. is equal to 1 - mps. d. theoretically should be less than 1 e. all of the above.

E All of the above

According to the simplified macro model (with no government and no foreign sector), which of the following characterizes an economy in equilibrium? a. When leakages = injections b. When saving (S) = intended investment (II) c. When Y = AE d. When actual consumption and investment spending equals the intended consumption and investment spending. e. All of the above

E all of the above

Which of the following can describe the meaning of autonomous consumption? a. The part of consumption that is not related to income. b. That which, when it changes, shifts the consumption schedule up or down. c. A minimum level of income that people feel required to spend for survival. d. The amount of consumption spending people will undertake no matter what their current incomes are, reflecting their long-term plans, their commitments and habits, and their place in the community. e. All of the above.

E all of the above