ECON EXAM 3
Contractionary monetary policy attempts to aggregate demand by interest rates. (A) decrease; increasing (B) increase; decreasing (C) decrease; decreasing (D) increase; increasing
A
The M2 definition of the money supply includes A. M1, savings accounts, small time deposits, and money markets. B. M1, savings accounts, small time deposits, money markets, and credit cards. C. savings accounts, mutual funds, small time deposits, and credit cards. D. M1, savings accounts, mutual funds, and credit cards.
A
Which of the following actions can the Fed take to decrease the equilibrium interest rate? (A) increase the money supply (B) increase money demand (C) decrease the money supply (D) decrease money demand
A
Which of the following assets is most liquid? A) dollar bill B) bond C) savings account D) stock
A
Which of the following is considered contractionary fiscal policy? A) Congress increases the income tax rate. B) Congress increases defense spending. C) Legislation allows a college tuition deduction from federal income taxes. D) The New Jersey legislature cuts highway spending to balance its budget.
A
Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will be A. an increase of $100 million. B. an increase of more than $100 million. C. an increase of less than $100 million. D. an increase of either more than or less than $100 million, depending on the MPC.
B
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run equilibrium? An increase in A) the money supply and a decrease in interest rates. B) government purchases. C) oil prices. D) taxes.
B
Refer to the Figure above. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely A) decrease government spending. B) increase government spending. C) lower interest rates. D) increase taxes.
B
Refer to the Figure above. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B A) the unemployment rate is very low. B) firms are operating below capacity. C) the economy is above full employment. D) income and profits are rising.
B
The fraction of bank deposits that is required to held as reserves is the A. reserve ratio. B. required reserve ratio. C. excess reserve ratio. D. reserve requirement.
B
The higher the tax rate, the larger the multiplier effect. A. True B. False
B
What changes should they make if they decide a contractionary fiscal policy is necessary? A. In this case, Congress and the president should enact policies that decrease government spending and decrease taxes. B. In this case, Congress and the president should enact policies that decrease government spending and increase taxes. C. In this case, Congress and the president should enact policies that increase government spending and increase taxes. D. In this case, Congress and the president should enact policies that increase government spending and decrease taxes.
B
What will happen to the money supply and the equilibrium interest rate if the Federal Reserve sells Treasury securities? (A) Money supply will increase and the equilibrium interest rate will increase. (B) Money supply will decrease and the equilibrium interest rate will increase. (C) Money supply will increase and the equilibrium interest rate will decrease. (D) Money supply will decrease and the equilibrium interest rate will decrease.
B
Which of the following is a goal of monetary policy? (A) zero inflation (B) price stability (C) increased potential output (D) decreased actual real GDP
B
Which of the following is an example of expansionary fiscal policy? A. increasing taxes B. increasing government purchases C. decreasing government transfers D. decreasing interest rates
B
Which of the following is not counted in M1? A) checking account balances B) credit card balances C) travelers' checks D) currency in circulation
B
Why might increasing taxes as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing inflation? A. The government has more concentrated power than the Fed. B. The legislative process experiences longer delays than monetary policy. C. The legislative process works quickly. D. The economy may have already slowed.
B
An increase in the money supply will lead to which of the following in the short run? (A) higher interest rates (B) decreased investment spending (C) decreased consumer spending (D) increased aggregate demand
D
In the definition of the money supply, where do credit cards belong? A. Both M1 and M2. B. M1. C. M2. D. Credit cards are not included in the definition of the money supply.
D
The dynamic aggregate demand and aggregate supply model allows for a more realistic examination of monetary policy over the basic aggregate supply and aggregate demand model by allowing the economy in the dynamic model to (A) use both fiscal and monetary policy. (B) experience changes in the price level and changes in net exports. (C) experience changes in aggregate demand when the Fed changes the money supply. (D) experience continuous inflation and experience long-run economic growth.
D
The quantity of money demanded rises (that is, there is a movement along the money demand curve) when (A) the aggregate price level increases. (B) the aggregate price level falls. (C) real GDP increases. (D) short-term interest rates fall.
D
Which of the following is a monetary policy tool used by the Federal Reserve Bank? A. Increasing the reserve requirement from 10 percent to 12.5 percent. B. Decreasing the rate at which banks can borrow money from the Federal Reserve. C. Buying $500 million worth of government securities, such as Treasury bills. D. All of the above.
D
Which of the following would be considered a fiscal policy action? A) The Fed increases the money supply. B) Tax incentives are offered to encourage the purchase of fuel efficient cars. C) Spending on the war in Afghanistan is increased to promote homeland security. D) A tax cut is designed to stimulate spending during a recession.
D
Which of the following is the most liquid monetary aggregate? A. M1 B. M2 C. dollar bills D. checking accounts
C
What is fiscal policy? A. Fiscal policy can be described as changes in interest rates to achieve macroeconomic policy objectives. B. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives. C. Fiscal policy can be described as changes in interest rates and taxes to achieve macroeconomic policy objectives. D. Fiscal policy can be described as changes in government spending and interest rates to achieve macroeconomic policy objectives.
B.
A change in which of the following will shift the money demand curve? I. the aggregate price level II. real GDP III. the interest rate (A) I only (B) II only (C) I and II only (D) I, II and III
C
A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out. A) increase; decrease B) decrease; decrease C) decrease; increase D) increase; increase
C
After September 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal policy? A. Yes. Fiscal policy refers to changes in government spending and taxes. B. Yes. Increases in defense spending are designed to achieve macroeconomic policy objectives. C. No. The increase in defense spending after that date was designed to achieve homeland security objectives. D. No. Fiscal policy refers to changes in interest rates and the money supply.
C
When the economy is experiencing a recession, automatic stabilizers will cause: A. transfer payments to decrease and tax revenues to decrease. B. transfer payments to increase and tax revenues to increase. C. transfer payments to increase and tax revenues to decrease. D. transfer payments and tax revenues to be unaffected.
C
Which of the following changes would be the most likely to reduce the size of the money multiplier? A. a decrease in the required reserve ratio B. a decrease in excess reserves C. an increase in the cash holding by consumers D. a decrease in bank runs
C
