ECN-362 FINAL GCU DR. J
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9. A tax cut shifts the aggregate demand curve the farthest right if a. the MPC is large and if the tax cut is permanent. b. the MPC is large and if the tax cut is temporary. c. the MPC is small and if the tax cut is permanent. d. the MPC is small and if the tax cut is temporary.
A
Monetary Policy in Mokania Mokania has had inflation of 15% for many years. Mokania establishes a new central bank, the Bank of Mokania, with the hopes of reducing the inflation rate.61. Refer to Monetary Policy in Mokania. The Bank of Mokania reduced inflation to its announced goal of 5%. However its efforts made the unemployment rate rise by 10 percentage points for a year while output fell by 30 percent for a year. Which of the following is correct? a. Initially people's inflation expectations had been higher than 5%. The sacrifice ratio was 3. b. Initially people's inflation expectations had been higher than 5%. The sacrifice ratio was 1. c. Initially people's inflation expectations had been lower than 5%. The sacrifice ratio was 3. d. Initially people's inflation expectations had been lower than 5%. The sacrifice ratio was 1.
A
Scenario 33-2 Imagine that in the current year the economy is in long-runequilibrium. Then the federal government reduces its purchases of goods by 50%. 42. Refer to Scenario 33-2. Which curve shifts and in which direction? a. Aggregate demand shifts left. b. Aggregate demand shifts right. c. Aggregate supply shifts left. d. Aggregate supply shifts right.
A
86. If aggregate demand shifts right then in the short run a. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. b. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. c. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. d. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.
B
88. Suppose that the money supply decreases. In the short run, this increases prices according to a. both the short-run Phillips curve and the aggregate demand and aggregate supply model. b. neither the short-run Phillips curve nor the aggregate demand and aggregate supply model. c. the short-run Phillips curve, but not according to the aggregate demand and aggregate supply model. d. the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.
B
Scenario 1 Consider an economy described by the following equations Y=C+I+G C = 100 + 0.75(Y-T) I = 500 -50RG = 125T = 100 Where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and R is the interest rate. If the economy were at full employment (that is, at its natural rate) GDP would be 2000 56. Refer to scenario 1, suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 4% (r = 4). Solve for GDP. How does it compare to the full employment level? a. 1600, less than full employment level. b. 1800, less than full employment level. c. 2100, greater than full employment level. d. 2000, no change in full employment level.
B
90. The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have a. lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied. b. higher than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied. c. lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. d. higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied
C
15. Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then 1 + MPC + MPC2 + MPC3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of a. 1.96. b. 3. c. 1.67. d. 2.5.
D
2. Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will a) rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. b) fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. c) rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. d)fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
D
29. If the unemployment rate is below the natural rate, then a. inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right. b. inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left. c. inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift left. d. inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right.
D
3. Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more, a. the smaller the MPC and the stronger the influence of income on money demand. b. the smaller the MPC and the weaker the influence of income on money demand. c. the larger the MPC and the stronger the influence of income on money demand. d. the larger the MPC and the weaker the influence of income on money demand.
D
30. Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one-third as strong as the multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift? a. By $90 billion b. By $60 billion c. By $20 billion d. By $30 billion
D
Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. 1. Refer to Scenario 33-1. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand? a. Net exports would rise which by itself would increase U.S. aggregate demand. b. Net exports would rise which by itself would decrease U.S. aggregate demand. c. Net exports would fall which by itself would increase U.S. aggregate demand. d. Net exports would fall which by itself would decrease U.S. aggregate demand.
D
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16. A policy that lowered the natural rate of unemployment would shift a. both the short-run and the long-run Phillips curves to the left. b. the short-run Phillips curve left but leave the long-run Phillips curve unchanged. c. the long-run Phillips curve left but leave the short-run Phillips curve unchanged. d. neither the long-run Phillips curve nor the short-run Phillips curve left.
A
23. According to the theory of liquidity preference, a. an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right. b. an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward. c. an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward. d. an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward.
A
34. Which of the following is not a determinant of the long-run level of real GDP? a. The price level b. The amount of capital used by firms c. Available stock of human capital d. Available technology
A
37. If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, a. unemployment equals the natural rate and expected inflation equals actual inflation. b. unemployment is above the natural rate and expected inflation equals actual inflation. c. unemployment equals the natural rate and expected inflation is greater than actual inflation. d. there is no unemployment or inflation.
A
4. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate unemployment is higher in the short run than before. b. left, so that at any inflation rate unemployment is higher in the short run than before. c. right, so that at any inflation rate unemployment is lower in the short run than before. d. left, so that at any inflation rate unemployment is lower in the short run than before.
A
59. If the Federal Reserve accommodates an adverse supply shock, a. inflation expectations may rise which shifts the short-run Phillips curve shifts right. b. inflation expectations may rise which shifts the short-run Phillips curve shifts left. c. inflation expectations may fall which shifts the short-run Phillips curve shifts right. d. inflation expectations may fall which shifts the short-run Phillips curve shifts left
A
7. Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would a. rise which by itself would increase aggregate demand. b. rise which by itself would decrease aggregate demand. c. fall which by itself would increase aggregate demand. d. fall which by itself would decrease aggregate demand.
A
70. If the natural rate of unemployment falls, a. both the short-run Phillips curve and the long-run Phillips curve shift. b. only the short-run Phillips curve shifts. c. only the long-run Phillips curve shifts. d. neither the short-run nor the long-run Phillips curves shift.
A
77. The model of short-run economic fluctuations focuses on a. the price level and real GDP. b. productivity and economic growth. c. the neutrality of money and inflation. d. None of the above is correct.
A
81. According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money? a. interest rate b. money supply c. quantity of output d. price level
A
82. In the long run, an increase in the money supply growth rate a. raises expected inflation so the short-run Phillips curve shifts right. b. raises expected inflation so the short-run Phillips curve shifts left. c. reduces expected inflation so the short-run Phillips curve shifts left. d. None of the above is correct.
A
83. Other things the same, if the central bank decreases the rate at which it increases the money supply, then a. unemployment and inflation rise in the short run. b. unemployment rises and inflation falls in the short run. c. unemployment falls and inflation rises in the short run. d. unemployment and inflation fall in the short run.
A
32. Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment? a. Decrease the money supply b. Increase government expenditures c. Increase taxes d. Increase interest rates
B
26. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate output is higher in the short run than before. b. left, so that at any inflation rate output is higher in the short run than before. c. right, so that at any inflation rate output is lower in the short run than before. d. left, so that at any inflation rate output is lower in the short run than before.
C
31. "Money is a veil" best describes a. the general view of the economy. b. the historical view of the economy. c. classical view of the economy. d. economy in the short run but not the long run.
C
44. Monetary policy a. must be described in terms of interest-rate targets. b. must be described in terms of money-supply targets. c. can be described either in terms of the money supply or in terms of the interest rate. d. cannot be accurately described in terms of the interest rate or in terms of the money supply.
C
46. During recessions, taxes tend to a. rise and thereby increase aggregate demand. b. rise and thereby decrease aggregate demand. c. fall and thereby increase aggregate demand. d. fall and thereby decrease aggregate demand.
C
33. Which of the following would not be directly included in aggregate demand? a. An increase in firms' inventories b. Purchases of goods by households c. Firms' purchases of newly produced machinery d. Government's tax collections
D
41. An increase in household saving causes consumption to a. rise and aggregate demand to increase. b. rise and aggregate demand to decrease .c. fall and aggregate demand to increase. d. fall and aggregate demand to decrease.
D
73. At the end of 2007, the government had a debt of about $5,000 billion. During 2007, real GDP grew by about 0.8 percent and inflation was about 2.7 percent. About what is the largest deficit the government could have run without raising the debt-to-GDP ratio? a. 135 billion b. 143 billion c. 169 billion d. 175 billion
D
45. Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium? a. Increase taxes b. Increase government expenditures c. Increase the money supply d. Lower interest rates
A
11. If an increase in inflation permanently reduced unemployment, then a. money would not be neutral and the long-run Phillips curve would slope upward. b. money would not be neutral and the long-run Phillips curve would slope downward. c. money would be neutral and the long-run Phillips curve would slope upward. d. money would be neutral and the long-run Phillips curve would slope downward.
B
24. A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate toward its previous level it would a. increase the rate at which the money supply increases. This will also move inflation closer to its previous rate. b.increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate. c. decrease the rate at which the money supply increases. This will also move inflation closer to its original rate. d. decrease the rate at which the money supply increases. However, this will make higher than its previous rate.
B
12. Which of the following two effects of a decrease in the tax rate on saving would raise savings? a. The income effect and the substitution effect b. The income effect but not the substitution effect c. The substitution effect but not the income effect d. Neither the substitution effect nor the income effect
C
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51. The multiplier in a country is equal to 5, and households pay no taxes. At the current equilibrium real GDP of $14 trillion, total real consumption spending by households is $12 trillion. What is real autonomous consumption in this country? a. $0.8 trillion b. $2 trillion c. $1.2 trillion d. $11.2 trillion
A
54. An economy is operating with output that is $400 billion below its natural level, and fiscal policy makers want to close the recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The MPC is 0.2, and the price level is completely fixed in the short-run. In what direction and by how much would the government funding need to change to close the recessionary gap? a. Government spending must increase by $320 billion b. Government spending must increase by $2000 billion c. Government spending must decrease by $320billion d. Government spending must decrease by $2000 billion
A
58. If the government reduced the minimum wage and pursued contractionary monetary policy, then in the long run a. both the unemployment rate and the inflation rate would be lower. b. the unemployment rate would be lower and the inflation rate would be higher. c. the unemployment rate would be higher and the inflation rate would be lower. d. the unemployment rate and the inflation rate would be higher.
A
89. In which of the following cases is the after-tax real interest rate highest? a. inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 20%. b. inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 25%. c. inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 20%. d. inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 25%.
A
10. Other things the same, if the U.S. price level falls, then U.S. residents want to buy a. more foreign bonds. The real exchange rate rises. b. more foreign bonds. The real exchange rate falls. c. fewer foreign bonds. The real exchange rate rises. d. fewer foreign bonds. The real exchange rate falls.
B
36. The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead a. to a lower unemployment rate and a lower inflation rate than policy B. b. to a lower unemployment rate and a higher inflation rate than policy B. c. to a higher unemployment rate and lower inflation rate than policy B. d. to a higher unemployment rate and higher inflation rate than policy B.
B
43. According to liquidity preference theory, if the price level decreases, then a. the interest rate falls because money demand shifts right. b. the interest rate falls because money demand shifts left. c. the interest rate rises because money supply shifts right. d. the interest rate rises because money supply shifts left.
B
48. Suppose a decrease in interest rates causes falling unemployment and rising output. To counter this, the Federal Reserve would a. decrease government spending. b. decrease the money supply. c. increase government spending. d. increase the money supply.
B
49. One determinant of the long-run average unemployment rate is the a. market power of unions, while the inflation rate depends primarily upon government spending. b. minimum wage, while the inflation rate depends primarily upon the money supply growth rate. c. rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions. d. existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.
B
52. At an initial point on the aggregate demand curve, the price level is 125, the real GDP is $18 trillion. When the price level falls to a value of 120, total autonomous expenditures increase by $250 billion. The MPC is 0.75. What is the level of real GDP at a new point on the aggregate demand curve? a. $17 trillion b. $19 trillion c. $1 trillion d. $2 trillion
B
55. The mathematical equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), expresses a. how the long run equilibrium adjusts to changes in money supply. b. how output deviates in the short run from its long run natural rate. c. how the short run aggregate supply curve shifts. d. how adverse shifts in aggregate supply can cause stagflation.
B
64. A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate toward its previous level it would a. increase the rate at which the money supply increases. This will also move inflation closer to its previous rate. b. increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate. c. decrease the rate at which the money supply increases. This will also move inflation closer to its original rate. d. decrease the rate at which the money supply increases. However, this will make higher than its previous rate.
B
67. Suppose that the country of Aquilonia has an inflation rate of about 2 percent per year and a real growth rate of about 3 percent per year. Suppose also that it has nominal GDP of about 400 billion units of currency and current nominal national debt of 200 billion units of domestic currency. Which of the following government spending and taxation figures will keep the debt to-income ratio constant? a. government spending equal to 30 billion units and tax collections equal to 25 billion units b. government spending equal to 30 billion units and tax collections equal to 20 billion units c. government spending equal to 30 billion units and tax collections equal to 10 billion units d. government spending equal to 30 billion units and tax collections equal to 5 billion units
B
71. In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is a.$360. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. b. $360. For this economy, an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand. c. $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. d. $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand.
B
78. From 2006 to 2008 there was a dramatic fall in the price of houses. If this fall made people feel less wealthy, then it would have shifted a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.
B
79. The six debates over macroeconomic policy exist mostly because a. economists disagree over basic issues such as the importance of saving for economic growth. b. there are tradeoffs and people disagree about the best way to deal with them. c. politicians offer misleading information. d. people fail to clearly see the benefits or the costs of most changes.
B
8. In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is a. $60.25. b. $60.75. c. $61.33. d. $64.00.
B
20. If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would a. appreciate which would cause aggregate demand to shift right. b. appreciate which would cause aggregate demand to shift left. c. depreciate which would cause aggregate demand to shift right. d. depreciate which would cause aggregate demand to shift left.
C
22. If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action a. lowers both inflation and unemployment. b. lowers inflation but raises unemployment. c. raises inflation but lowers unemployment. d. raises both inflation and unemployment.
C
25. Changes in the interest rate a. shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy. b. shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy. c. shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level. d. do not shift aggregate demand.
C
47. When measured over a long span of time, a tax on interest income a. removes all benefits from saving. b. reduces the benefits from saving by a small amount. c. reduces the benefits from saving by a large amount. d. does nor reduce any of the benefits from saving.
C
50. The marginal propensity to consume is equal to 0.80. An increase in household wealth causes autonomous consumption to rise by $10 million. By how much will equilibrium real GDP increase at the current price level, the other things being equal? a. $8M b. $2M c. $50M d. $12.5M
C
53. At an initial point on the aggregate demand curve, the price level is 100, the real GDP is $18 trillion. After the price level rises to 110, however there is an upward movement along the aggregate demand curve, and real GDP declines to $14 trillion. If total planned spending declines by $200 billion in response to the increase in the price level, what is the MPC in this economy? a. 0.05 b. 0.02 c. 0.95 d. 0.90
C
69. From the end of 2005 to the end of 2006, the United States ran a deficit of about $309 billion. The debt at the start of this period was about $4,592 billion. Which of the following combinations of inflation and real GDP growth would have allowed the government to run this deficit while keeping the ratio of real GDP to the debt about the same? a. about 3% inflation and about 2.2% real GDP growth b. about 3% inflation and about 3.2% real GDP growth c. about 3.4% inflation and about 3.3% real GDP growth d. about 3.4% inflation and about 4% real GDP growth
C
72. If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds, a. the dollar would appreciate which would cause aggregate demand to shift right. b. the dollar would appreciate which would cause aggregate demand to shift left. c. the dollar would depreciate which would cause aggregate demand to shift right. d. the dollar would depreciate which would cause aggregate demand to shift left.
C
84. Which of the following shifts the long-run Phillips curve left? a. both an increase in the inflation rate and a decrease in the minimum wage rate b. an increase in the inflation rate, but not a decrease in the minimum wage rate c. a decrease in the minimum wage rate, but not an increase in the inflation rate d. neither a decrease in the minimum wage rate nor an increase in the inflation rate
C
85. Which of the following will reduce the price level and real output in the short run? a. an increase in government purchases. b. an decrease in oil prices c. a decrease in the money supply d. technical progress
C
87. The long-run aggregate supply curve shifts right if a. either immigration from abroad increases or technology improves. b. immigration from abroad increases, but not if technology improves. c. technology improves, but not if immigration from abroad increases. d. None of the above are correct.
C
40. The Federal Reserve will tend to tighten monetary policy with the goal is to stabilize the economy when a. interest rates are rising too rapidly. b. it thinks the unemployment rate is too high. c. the growth rate of real GDP is quite sluggish. d. it thinks inflation is too high today, or will become too high in the future.
D
60. A tax cut shifts aggregate demand a. by more than the amount of the tax cut. b. by the same amount as the tax cut. c. by less than the tax cut. d. None of the above is necessarily correct.
D
62. Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged, then a. the central bank would have to raise interest rates which would decrease output. b. the central bank would have to raise interest rates which would increase output. c. the central bank would have to reduce interest rates which would decrease output. d. the central bank would have to reduce interest rates which would increase output.
D
63. Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in aggregate demand? a. Raise both taxes and expenditures by $5.56 billion dollars. b. Raise taxes by $40 billion dollars and increase expenditures by $50 billion dollars. c. Reduce taxes by $10 billion dollars and increase expenditures by $10 billion dollars. d. Reduce taxes by $5.56 billion dollars and increase expenditures by $5.56 billion dollars.
D
66. Which of the following is correct? a. An increase in the money supply causes the interest rate to decrease so that aggregate demand shifts left. b. An increase in stock prices reduces consumption spending so that aggregate demand shifts left. c. An increase in the price level causes the exchange rate to rise so that aggregate demand shifts left. d. A recession in other countries reduces U.S. net exports so that U.S. aggregate demand shifts left.
D
68. In June of 2010, the government had a debt of about $8.6 trillion. Over the next year real GDP grew by about 1.6% and inflation was about 2%. What is the largest deficit the government could have run over this time without raising the debt-to-GDP ratio? a. about $68.8 billion b. about $137.6 billion c. about $275.2 billion d. about $309.6 billion
D
74. Last year a country's real GDP grew by 4%, its inflation rate was 2.5%, and it's government budget deficit was about $250 billion. It's debt to GDP ratio was unchanged. About what was its debt at the start of last year? a. 16.7 trillion b. 10.0 trillion c. 6.25 trillion d. 3.85 trillion
D
75. The aggregate quantity of goods and services demanded changes as the price level falls because a. real wealth falls, interest rates rise, and the dollar appreciates. b. real wealth falls, interest rates rise, and the dollar depreciates. c. real wealth rises, interest rates fall, and the dollar appreciates. d. real wealth rises, interest rates fall, and the dollar depreciates.
D
76. According to liquidity preference theory, the slope of the money demand curve is explained as follows: a. Interest rates rise as the Fed reduces the quantity of money demanded. b. Interest rates fall as the Fed reduces the supply of money. c. People will want to hold less money as the cost of holding it falls. d. People will want to hold more money as the cost of holding it falls.
D
80. An individual would suffer lower losses or maybe even gain from an unexpectedly higher inflation rate if a. she held much currency and on net was a lender. b. she held much currency and on net was a borrower. c. she held little currency and on net was a lender. d. she held little currency and on net was a borrower.
D
Scenario 1 Consider an economy described by the following equations Y=C+I+G C = 100 + 0.75(Y-T) I = 500 -50RG = 125T = 100 Where Y is GDP, C is consumption, I is investment, G is government purchases, T is taxes, and R is the interest rate. If the economy were at full employment (that is, at its natural rate) GDP would be 2000 57. Refer to scenario 1, assuming no change in fiscal policy what change in interest rate would restore full employment level? a. 4% b. 2% c. 0% d. 3%
D
Scenario 33-1 Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. 6. Refer to Scenario 33-1. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States? a. Make it rise which by itself would increase U.S. aggregate demand. b. Make it rise which by itself would decrease U.S. aggregate demand. c. Make it fall which by itself would increase U.S. aggregate demand. d. Make it fall which by itself would decrease U.S. aggregate demand.
D
