Econ 111 Final

There is an excess demand for money at an interest rate of a. 3.25 percent. b. 4.25 percent. c. 5.25 percent. d. 6.25 percent

a. 3.25 percent.

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve? The wealth effect The interest-rate effect The exchange-rate effect The real-wage effect

The interest-rate effect

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. 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. Aggregate demand shifts left.

Which of the following is an example of crowding out? a. An increase in government spending increases interest rates, causing investment to fall. b. A decrease in private savings increases interest rates, causing investment to fall. c. A decrease in the money supply increases interest rates, causing investment to fall. d. An increase in taxes increases interest rates, causing investment to fall.

a. An increase in government spending increases interest rates, causing investment to fall.

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this? a. Both sticky price theory and sticky wage theory b. Sticky price theory but not sticky wage theory c. Sticky wage theory but not sticky price theory d. Neither sticky wage theory nor sticky price theory

a. Both sticky price theory and sticky wage theory

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. What would happen to the dollar? a. It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. b. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. c. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. d. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.

a. It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.

Suppose the economy starts at Point R. If aggregate demand increases from AD2 to AD3, then in the short run the economy moves to a. Point O. b. Point Q. c. Point P. d. Point S

a. Point O.

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. The price level

Economic expansions (boom) in Canada would cause the U.S. price level a. and real GDP to rise. b. and real GDP to fall. c. to rise and real GDP to fall. d. to fall and real GDP to rise

a. and real GDP to rise.

Other things the same, if technology increases, then in the long run a. both output and prices are higher. b. output is higher and prices are lower. c. output is lower and prices are higher. d. both output and prices are lower.

a. both output and prices are higher.

From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate a. demand right. b. demand left. c. supply right. d. supply left

a. demand right.

The economic boom of the early 1940s resulted mostly from a. increased government expenditures. b. falling prices of oil and other natural resources. c. an increase in the growth rate of the money supply. d. rapid developments in transportation, electronics, and communication

a. increased government expenditures.

When the Fed buys bonds the supply of money a. increases and so aggregate demand shifts right. b. decreases and so aggregate demand shifts left. c. decreases and so aggregate demand shifts right. d. increases and so aggregate demand shifts left.

a. increases and so aggregate demand shifts right.

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. rise which by itself would increase aggregate demand.

An increase in government purchases will a. shift aggregate demand from AD2 to AD1. b. shift aggregate demand from AD2 to AD3. c. cause movement from point A to point B along AD2. d. have no effect on aggregate demand.

a. shift aggregate demand from AD2 to AD1.

Using the liquidity-preference model, when the Federal Reserve decreases the money supply, a. the equilibrium interest rate increases. b. the aggregate-demand curve shifts to the right. c. the quantity of goods and services demanded is unchanged for a given price level. d. the short-run aggregate-supply curve shifts to the left

a. the equilibrium interest rate increases.

An example of an automatic stabilizer is a. unemployment benefits. b. a lowering of interest rates by the Fed. c. a decrease in money demand. d. a decrease in tax rates in response to a recession.

a. unemployment benefits

The Federal Open Market Committee is ​a. the group at the Federal Reserve that sets monetary policy. ​b. in charge of tax collection. ​c. the group that sets the amount of government spending. ​d. the group that reviews income assistance programs

a. ​the group at the Federal Reserve that sets monetary policy.

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. $60.75.

Take the following information as given for a small economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. The marginal propensity to consume for this economy is a. 0.65. b. 0.75 c. 0.65 or 0.75, depending on whether income is $10,000 or $11,000. d. 0.80

b. 0.75

If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from a. O to P. b. Q to R. c. P to O. d. R to Q.

b. Q to R.

The natural level of output occurs at a. Y1. b. Y2 c. Y3. d. Y1 and Y3

b. Y2

The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2 a. could be caused by an outbreak of war in the Middle East. b. could be caused by a decrease in the expected price level. c. causes the economy to experience an increase in the d. unemployment rate. d. causes the economy to experience stagflation.

b. could be caused by a decrease in the expected price level.

When the interest rate increase, the opportunity cost of holding money a. increases, so the quantity of money demanded increases. b. increases, so the quantity of money demanded decreases. c. decreases, so the quantity of money demanded increases. d. decreases, so the quantity of money demanded decreases

b. increases, so the quantity of money demanded decreases.

A goal of monetary policy and fiscal policy is to a. offset the shifts in aggregate demand and thereby eliminate unemployment. b. offset shifts in aggregate demand and thereby stabilize the economy. c. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. d. enhance the shifts in aggregate demand and thereby increase economic growth.

b. offset shifts in aggregate demand and thereby stabilize the economy.

Suppose the economy starts at R. Stagflation would be consistent with the move to a. P1 and Y1. b. P1 and Y3. c. P3 and Y1. d. P3 and Y3.

c. P3 and Y1.

If the stock market crashes, then a. aggregate demand decreases, which the Fed could offset by selling bonds. b. aggregate supply decreases, which the Fed could offset by purchasing bonds. c. aggregate demand decreases, which the Fed could offset by purchasing bonds. d. aggregate supply decreases, which the Fed could offset by selling bonds.

c. aggregate demand decreases, which the Fed could offset by purchasing bonds.

In recent years, the Federal Reserve has conducted policy by setting a target for the a. size of the money supply. b. growth rate of the money supply. c. federal funds rate. d. discount rate.

c. federal funds rate.

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. higher than desired prices, which leads to an increase 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. lower 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.

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $14 billion. An increase in government purchases of $90 billion will shift aggregate demand to the a. left by $380 billion. b. left by $436 billion. c. right by $436 billion. d. right by $380 billion.

c. right by $436 billion.

If the Federal Reserve decided to raise interest rates, it could a. buy bonds to lower the money supply. b. buy bonds to raise the money supply. c. sell bonds to lower the money supply. d. sell bonds to raise the money supply.

c. sell bonds to lower the money supply.

If the Fed increases the money supply, a. the interest rate increases, which tends to increase investment and therefore the aggregate demand. b. the interest rate increases, which tends to reduce investment and therefore the aggregate demand. c. the interest rate decreases, which tends to increase investment and therefore the aggregate demand. d. the interest rate decreases, which tends to reduce investment and therefore the aggregate demand.

c. the interest rate decreases, which tends to increase investment and therefore the aggregate demand.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for a. the slope of short-run aggregate supply. b. the slope of long-run aggregate supply. c. the slope of the aggregate-demand curve. d. shifts in the aggregate-demand curve.

c. the slope of the aggregate-demand curve.

If the economy starts at O, a decrease in the money supply moves the economy a. to P in the long run. b. to Q in the long run. c. back to O in the long run. d. to R in the long run.

c. to Q in the long run.

According to liquidity preference theory, the money-supply curve is a. upward sloping. b. downward sloping. c. vertical. d. horizontal.

c. vertical.

Which of the following shifts aggregate demand to the left? 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

d. A decrease in the money supply

Which of the following would cause stagflation? a. Aggregate demand shifts right. b. Aggregate demand shifts left. c. Aggregate supply shifts right. d. Aggregate supply shifts left.

d. Aggregate supply shifts left.

In 2008, the United States was in recession. Which of the following things would you not expect to have happened? a. Increased layoffs and firings b. A higher rate of bankruptcy c. Increased claims for unemployment insurance d. Increased real GDP

d. Increased real GDP

In which of the following cases would the quantity of money demanded be smallest? a. r = 0.06, P = 1.2 b. r = 0.05, P = 1.0 c. r = 0.04, P = 1.2 d. r = 0.06, P = 1.0

d. r = 0.06, P = 1.0 (Md = P * 1/r)

If the money-supply curve MS on the left-hand graph were to shift to the left, this would a. not represent an action taken by the Federal Reserve. b. shift the AD curve to the right. c. create, until the interest rate adjusted, an excess supply of money at the interest rate that equilibrated the money market before the shift. d. shift the AD curve to the left

d. shift the AD curve to the left