Eco Final exam practice test
Which of the following shifts money demand left? 1. neither an increase in the interest rate nor an increase in the price level 2. an increase in the price level but not an increase in the interest rate 3. an increase in the interest rate or an increase in the price level 4. an increase in the interest rate but not an increase in the price level
1.
Open-market purchases... 1. increase the price level and decrease real GDP. 2. increase the price level and real GDP. 3. decrease the price level and increase real GDP. 4. decrease the price level and real GDP.
2.
According to the theory of liquidity preference, an increase in the price level causes the 1.interest rate and investment to fall. 2.interest rate and investment to rise. 3.interest rate to fall and investment to rise. 4.interest rate to rise and investment to fall.
4
In the short run, open-market sales 1.increases the price level and decreases real GDP. 2.decreases the price level and increases real GDP. 3.increase the price level and real GDP. 4.decrease the price level and real GDP.
4
As income rises a. money demand rises, so the interest rate rises. b. money demand rises, so the interest rate falls c. money demand falls, so the interest rate rises. d. money demand falls, so the interest rate falls.
A
If the Fed conducts open-market purchases, the money supply a. increases and aggregate demand shifts right. b. increases and aggregate demand shifts left. c. decreases and aggregate demand shifts right. d. decreases and aggregate demand shifts left.
A
The long-run aggregate supply curve shifts right if a. technology improves. b. the price level decreases. c. the price of oil increases. d. the money supply increases.
A
The theory of liquidity preference illustrates the principle that a. monetary policy can be described either in terms of the money supply or in terms of the interest rate. b. monetary policy can be described either in terms of the exchange rate or the interest rate. c. monetary policy must be described in terms of the money supply. d. monetary policy must be described in terms of the interest rate.
A
Which of the following events would shift money demand to the right? a. an increase in the price level b. a decrease in the price level c. an increase in the interest rate d. a decrease in the interest rate
A
Which of the following shifts money demand to the right? a. an increase in the price level b. a decrease in the price level c. an increase in the interest rate d. a decrease in the interest rate
A
Which of the following would make the price level decrease and real GDP increase? a. long-run aggregate supply shifts right b. long-run aggregate supply shifts left c. aggregate demand shifts right d. aggregate demand shifts left
A
Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? What might the president and Congress have to do to keep output stable?
As consumers become pessimistic about the future of the economy, they cut their expenditures so that aggregate demand shifts left and output falls. The president and Congress could adjust fiscal policy to increase aggregate demand. They could either increase government spending, or cut taxes, or both.
15．If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by a. increasing the money supply which raises interest rates. b. increasing the money supply which lowers interest rates. c. decreasing the money supply which raises interest rates. d. decreasing the money supply which lowers interest rates.
B
Aggregate demand shifts left when the government a. decreases taxes. b. cuts military expenditures. c. Both of the above are correct. d. None of the above is correct.
B
Assume the MPC is 0.625. Assuming only the multiplier effect matters, a decrease in government purchases of $10 billion will shift the aggregate demand curve to the a. left by about $13.3 billion. b. left by about $26.7 billion. c. right by about $36.7 billion. d. None of the above is correct.
B
Assume the multiplier is 5 and that the total crowding-out effect is $20 billion. An increase in government purchases of $10 billion when the multiplier is 5 will shift the aggregate demand curve A. None of the above is correct. B. right $30 billion. C. right $70 billion. D. right $150 billion.
B
If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by a. increasing the money supply which raises interest rates. b. increasing the money supply which lowers interest rates. c. decreasing the money supply which raises interest rates. d. decreasing the money supply which lowers interest rates.
B
If the interest rate is below the Fed's target, the Fed would A. buy bonds to increase the money supply. B. sell bonds to decrease the money supply. C. buy bonds to decrease the money supply. D. sell bonds to increase the money supply.
B
The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms they buy goods and services from pay their employees. This illustrates.. a. the crowding-out effect. b. the multiplier effect. c. the Fisher effect. d. None of the above is correct.
B
Which of the following policies would stabilization policy activists support when the economy is experiencing unemployment above the natural rate? a. a decrease in the money supply b. a reduction in tax rates c. a decrease in government purchases d. None of the above is correct.
B
Which of the following shifts aggregate demand to the right? a. an increase in the price level b. an increase in the money supply c. a decrease in the price level d. a decrease in the money supply
B
Which of the following shifts short-run aggregate supply left? a. an increase in the actual price level b. an increase in the expected price level c. an increase in the capital stock d. None of the above is correct.
B
According to the theory of liquidity preference, the money supply A. and money demand are negatively related to the interest rate. B. and money demand are positively related to the interest rate. C. is independent of the interest rate, while money demand is negatively related to the interest rate. D. is negatively related to the interest rate while money demand is positively related to the interest rate.
C
An increase in government purchases is likely to a. decrease interest rates. b. result in a net decrease in aggregate demand. c. crowd out investment spending by business. d. decrease money demand.
C
Other things the same, the aggregate quantity of output supplied will increase if the price level a. is lower than expected so that firms believe the relative price of their output has increased. b. is lower than expected so that firms believe the relative price of their output has decreased. c. is higher than expected so that firms believe the relative price of their output has increased. d. is higher than expected so that firms believe the relative price of their output has decreased.
C
People will want to hold more money if the price level a. or the interest rate increases. b. or the interest rate decreases. c. increases or the interest rate decreases. d. decreases or the interest rate increases.
C
The aggregate supply curve is vertical in a. the short and long run. b. neither the short nor long run. c. the long run, but not the short run. d. the short run, but not the long run.
C
The economy is in long-run equilibrium when the government decides to significantly increase spending on transportation infrastructure, which will lower shipping costs for many businesses. We might expect that in the short run, a. real GDP will increase and the price level will fall, but in the long run, there will be no effect. b. real GDP will increase and the price level will fall, but in the long run, real GDP will increase and the price level might rise, fall or stay the same c. real GDP will increase and the price level might rise, fall or stay the same, and in the long run, real GDP will increase and the price level might rise, fall or stay the same. d. real GDP will increase and the price level might rise, fall or stay the same, but in the price level will increase and real GDP might rise, fall or stay the same.
C
The sticky price theory of the short-run aggregate supply curve says that when the price level rises more than expected, some firms will have a. higher than desired prices which increases their sales. b. higher than desired prices which depresses their sales. c. lower than desired prices which increases their sales. d. lower than desired prices which depresses their sales.
C
Which of the following shifts aggregate demand right? a. an increase in government expenditures or a decrease in the price level b. a decrease in government expenditures or an increase in the price level c. an increase in government expenditures, but not a change in the price level d. a decrease in the price level, but not an increase in government expenditures
C
According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will a. increase and the quantity of money demanded will decrease. b. increase and the quantity of money demanded will increase. c. decrease and the quantity of money demanded will decrease. d. decrease and the quantity of money demanded will increase.
D
According to liquidity preference theory, the money-supply curve would shift if the Fed a. engaged in open-market transactions. b. changed the discount rate. c. changed the reserve requirement. d. did any of the above
D
If the Fed conducts open-market sales, the money supply a. increases and aggregate demand shifts right. b. increases and aggregate demand shifts left. c. decreases and aggregate demand shifts right. d. decreases and aggregate demand shifts left.
D
If the interest rate increases a. or the price level increases, people will want to hold more money. b. or the price level increases, people will want to hold less money. c. or the price level decreases, people will want to hold more money. d. or the price level decreases, people will want to hold less money.
D
If there is a decrease in the money supply at the same time that major new sources of oil are discovered in the country, then in the short run we would expect a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the same. d. the price level will fall, and real GDP might rise, fall, or stay the same.
D
If there is crowding out, which of the following might decrease as government expenditures increased? a. real GDP b. the demand for money curve c. interest rates d. demand for capital goods
D
In which case does the aggregate demand curve shift right? a. the money supply decreases, making the interest rate drop b. the price level rises, making the interest rate drop c. the price level falls, making the interest rate drop d. the money supply increases, making the interest rate drop
D
People are likely to want to hold more money if the interest rate a. increases making the opportunity cost of holding money rise. b. increases making the opportunity cost of holding money fall. c. decreases making the opportunity cost of holding money rise. d. decreases making the opportunity cost of holding money fall.
D
The multiplier for changes in government spending is calculated as a. MPC. b. 1 - MPC. c. 1/MPC. d. 1/(1 - MPC).
D
The theory of liquidity preference assumes that the nominal supply of money is determined by the a. level of real GDP. b. rate of inflation. c. interest rate. d. the Federal Reserve.
D
When the government reduces taxes, which of the following decreases? a. consumption b. take-home pay c. household saving d. None of the above is correct.
D
Which of the following shifts aggregate demand to the left? a. The price level rises. b. The price level falls. c. The dollar depreciates. d. Stock prices fall.
D
Liquidity preference refers directly to Keynes' theory concerning a. the effects of changes in money demand and supply on interest rates. b. the effects of changes in money demand and supply on exchange rates. c. the effects of wealth on expenditures. d. the difference between temporary and permanent changes in income.
a
x
x
If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by 1. buying bonds to increase the money supply 2. selling bonds to increase the money supply. 3. buying bonds to decrease the money supply. 4. selling bonds to decrease the money supply.
1
Which of the following shifts aggregate demand to the left? 1.a decrease in the money supply 2.a decrease in the price level 3.an increase in the price level 4.an increase in the money supply
1.
Sticky nominal wages can result in a. lower profits for firms when the price level is lower than expected. b. a decrease in real wages when the price level is lower than expected. c. a short-run aggregate-supply curve that is vertical. d. a long-run aggregate-supply curve that is upward-sloping.
A
The supply of money increases when a. the value of money increases. b. the interest rate increases. c. the Fed makes open-market purchases. d. None of the above is correct.
c
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