Econ final exam

The marginal propensity to save for this economy is

0.2

Dissaving occurs when disposable income is

620

An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways?

A) increase, increase

If the marginal propensity to consume is 0.75, then an $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of

D) $400

For an economy that is operating inside its ppc, which of the following is true?

It can produce more of consumer and capital goods

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

a) Nominal: increase, Aggregate: decrease

If the value of the US dollar increases on the forgein exchange market, which of the following is most likely to occur in the short run?

a) aggregate demand will decrease

Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT

a) borrowers

Which of the following actions by the Federal Reserve of the United States increases the money supply

a) buying government bonds on the open market

On the graph above, stagflation will be caused by a

a) leftward shift in the short-run aggregate supply curve only

The short-run aggregate supply curve would be vertical if

a) nominal wages adjust immediately to changes in the price level

The consumer price index (CPI) is criticized for

a) overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as price changes

If aggregate demand is growing faster than long-run aggregate supply, the federal reserve is most likely to

a) sell securities on the open market

Assume that the marginal propensity to consume out of disposable income in 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by

b) $56

Which of the following will cause an increase in aggregate demand?

b) a decrease in income taxes

The graph above shows two aggregate demand curves, AD1 and AD2 and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by

b) a decrease in the money supply

Frictional unemployment occurs when which of the following happens?

b) a worker voluntarily quits a job to search for a better one.

An increase in the price level will most likely cause which of the following?

b) an increase in the demand for money

The purchase of United States government bonds by Japanese investors will be included in Japan's

b) financial account (formerly called capital account)

According to the graph above and starting with equilibrium point R, which of the following shift identifies the short-run and the long-run impact of a demand-pull inflation?

b) r to m r to n

Inflation occurs when there is a sustained increase in which of the following?

b) the average price level

Country A's growth rate in per capita real gross domestic product (GDP) has been consistently higher than that of Country B. Which of the following factors can account for these differences in he per capita gdp growth rates?

b) the labor force of Country A is becoming more skilled than the labor force of country B

Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregare demand?

c) Inrease in netexports and increase in aggregate demand

Which of the following policies, if appropriately sized, would expansion during a recession with the smallest change in interest rates?

c) a decrease in taxes and an open-market purchase of government securities by the central bank

An increase in which of the following will most likely increase productivity?

c) capital stock

Which of the following will lead to a depreciation of a nation's currency?

c) decreased real interest rates in the nation compared with the rest of the world

Which of the following is true of the phillips curve?

c) downward sloping in short run vertical in long run

The natural rate of unemployment can be defined as the

c) economy's long-run equilibrium rate of unemployment

If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur?

c) equilibrium quantity will increase

Which of the following is LEAST likely to promote economic growth?

c) increase in the consumption of nondurable goods

If the economy is in a severe recession, which of the following policy actions is most appropriate

c) increasing both the money supply and government spending

The diagram above shows three production possibilites curves (PPC's). If the current PPC is PPC, which of the following changes indicates a recession?

c) movement from point Y to point Z

As a component of aggregate demand, investment refers to the

c) purchase of new equipment and additional inventories

In the short run, government deficit spending will most likely

c) raise nominal interest rates

In the circular flow diagram of a market economy, which of the following supplies the factors of production

c) the household sector

If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of

c) the price level

Of the following, the most liquid asset is

currency

If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full-employment level?

d) an increase in government spending

Which of the following will most likely cause an increase in real output in the long run?

d) an increase in immigration from abroad

A rightward shift of the short-run Phillips curve is most likely due to

d) an increase in the expected rate of inflation

An increase in spending in an economy will cause a multiplied increase in gross domestic product because

d) consumption increases as income increases

Assume that the reserve requirement for demand deposits is 20%, that banks hold no excess reserves, & that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will

d) decrease by $50,000

If the contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?

d) decrease nominal interest rate, indeterminate employment

The main benefit of free trade between two countries is that

d) each country can consume beyond its constraints of resources and productivity

Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level

d) increase output, indeterminate price level

An increase in which of the following would most likely result in an increase in aggregate supply

d) labor-force participation rate

If wages & prices are perfectly flexible & inflation is correctly anticipated, then a expansionary monetery policy will affect the real output & price level in which of the following ways?

d) no change in real output, increase price level

If unemployed workers become discouraged, give up trying to find work, the number of workers employed & the unemplyment rate woulld change in which of the following ways?

d) no change, decrease

In the long run, an increase in aggregate demand due to an expansion in the money supply will increase

d) nominal output and the price level

Potential gross domestic product will decrease under which of the following conditions?

d) the country's annual depreciation is greater than its annual gross investment

Rational expectations theory suggests that people

d) use all available information in forming their expectations about furture inflation

If the rewuired reserve ratio is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M will at most be equal to

d)120 mil

Suppose that Country A is experiencing high inflation relative to country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market?

e) a depreciation of country's A currency

If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways?

e) decrease, decrease

Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will

e) increase by less than double

Which of the following is true of the opportunity cost of holding cash?

e) it increases as the interest rate rises

An increase in the international value of the United States dollar will most likely benefit

e) retired united states citizens living overseas on their social security checks

Which of the following is the most fundamental issue that economics addresses?

e) use of scarce resources

Increases in the real per capita income of a country are most closely associated with increases in which of the following

productivity

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn form Country B. If the terms of trade are beneficial to both countries, which of the following must be true?

the cost of producing a bushel of wheat in COuntry A is less than 2.5 bushels of corn