MACRO ECN 211 EXAM 3

The short-run consequence of an increase in the personal income tax levied on households is best described by graph

c) AD shifts down on SAS line

If inflation is higher than what was expected, -creditors receive a lower real interest rate than they had anticipated -debtors receive a higher real interest rate than they had anticipated -debtors pay a higher real interest rate than they had anticipated -creditors pay a lower real interest rate than they had anticipated.

creditors receive a lower real interest rate than they had anticipated

Other things the same, when the price level falls, interest rates -fall, so firms increase investment -rise, so firms decrease investment -fall, so firms decrease investment -rise, so firms increase investment.

fall, so firms increase investment

The Federal Reserve controls _____ and influences ______ with the intention of influencing ____ -money supply / government spending / price level -money supply / interest rates / aggregate supply -money demand / tax rates / government spending -money supply / interest rates / investment -money demand / interest rates / investment

money supply / interest rates / investment

In the long run, an economy's production of goods and services depends on its supply of -labor, natural resources, capital, and available technology -labor only -labor, and natural resources only -labor, natural resources, and capital only

labor, natural resources, capital, and available technology

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, -production is more profitable and employment rises -production is less profitable and employment falls -production is more profitable and employment falls -production is less profitable and employment rises.

production is more profitable and employment rises

Assume the MPC is 0.65. Assuming only the multiplier effect matters, an increase in government purchases of $20 billion will shift the aggregate demand curve to the -left by about $57.1 billion -left by about $30.77 billion -right by about $57.1 billion -right by about $30.77 billion.

right by about $57.1 billion

Relative-price variability -rises with inflation, leading to a misallocation of resources -falls with inflation, leading to a misallocation of resources -falls with inflation, leading to an improved allocation of resources -rises with inflation, leading to an improved allocation of resources.

rises with inflation, leading to a misallocation of resources

In order to understand how the economy works in the short run, we need to -understand that money is neutral in the short run -study a model in which real and nominal variables interact -study the classical model -understand that "money is a veil."

study a model in which real and nominal variables interact

Monetary policy is determined by -the Federal Reserve and involves changing the money supply. -the president and Congress and involves changing government spending and taxation. -the president and Congress and involves changing the money supply. -the Federal Reserve and involves changing government spending and taxation.

the Federal Reserve and involves changing the money supply

The unemployment rate was most likely greater than the natural rate at points -A and D -C and D -B and C -A,B,C and D -A and B

B and C

The inflation tax -All of the above are correct -is like a tax on everyone who holds money -is the revenue created when the government prints money -is an alternative to income taxes and government borrowing.

All of the above are correct

Which of the following policy actions shifts the aggregate-demand curve? -an increase in government spending -All of the above are correct -an increase in the money supply -an increase in taxes

All of the above are correct

Refer to the figures above. Which graph best describes the short-run effect of a decrease in the quantity of discount loans made by the Federal Reserve?

D) left shift

In the long-run, -an increase in the price level has no effect on the aggregate quantity of GDP supplied -an increase in the price level increases the aggregate quantity of GDP supplied -an increase in the price level reduces the aggregate quantity of GDP supplied -an increase in the price level increases the level of potential GDP.

an increase in the price level has no effect on the aggregate quantity of GDP supplied

Which of the following would be classified as fiscal policy? -The federal government cuts taxes to stimulate the economy -The Federal Reserve cuts interest rates to stimulate the economy -The federal government passes laws restricting the use of dangerous chemical in food production -all of these -A state government passes laws regarding voting access.

The federal government cuts taxes to stimulate the economy

Money neutrality suggests that an increase in the money supply leads to _____ in price level and inflation and _____ in real GDP. -a decrease / a decreases -an increase / an increase -an increase / a decrease -no change / no change -an increase / no change

an increase / no change

Which of the following would not lead to a decrease in aggregate demand and a leftward shift in the AD curve? -increase in domestic price level -a decrease in housing prices -all of the above would increase aggregate demand and shift the AD curve leftward -an in increase in interest rate -an appreciation of the domestic currency.

an increase in domestic price level

Which of the following shifts both the short-run and long-run aggregate supply right? -an increase in the expected price level -none of the above is correct -an increase in the capital stock -an increase in the actual price level

an increase in the capital stock

Refer to the figure below. If the relevant short-run aggregate supply curve is SAS2, what is the expected price level? -P0 -Cannot be determined. -P2 -P1

P2

This question is equivalent to three questions. Partial credit is awarded. Select the correct answers from the drop-down menu. Suppose the tax rate on nominal interest income is 20% and does not change over time. Also assume the real interest rate remains constant. In year 1, the inflation rate is 4% and the nominal interest rate is 10%. In year 2, the inflation rate is 14% 1)-The real interest rate in both years is? [ Select ] ["10", "4", "1", "18", "6", "14", "9", "20", "8", "12", "7", "16", "2"] 2)-The nominal interest rate in year 2 is? [ Select ] ["10", "4", "2", "18", "9", "1", "6", "20", "12", "8", "16", "7", "14"] 3)-The after-tax nominal interest rate in year 1 is? [ Select ] ["6", "20", "8", "4", "1", "2", "14", "9", "7", "10", "18", "16", "12"] 4)-The after-tax nominal interest rate in year 2 is ?[ Select ] ["16", "10", "9", "7", "18", "12", "20", "14", "8", "1", "6", "4", "2"] 5)-The after-tax real interest rate in year 1 is? [ Select ] ["16", "2", "1", "12", "4", "10", "18", "8", "9", "14", "6", "20", "7"] 6)-The after-tax real interest rate in year 2 is? [ Select ] ["4", "9", "7", "20", "12", "18", "10", "1", "14", "16", "2", "6", "8"]

1) 6 2) 20 3) 8 4) 16 5) 4 6) 2

Which of the following would lead to a shift in the short-run aggregate supply curve but no change in the long-run aggregate supply curve? -An increase in the general level of technology -A decrease in the expected price level -An increase in the level of capital stock -An increase in the population -All would shift both the long-run aggregate supply and short-run aggregate supply curves.

A decrease in the expected price level

Refer to the figure above. Suppose the the economy begins in recession. What is the short-run result of an open market purchase of securities by the Federal Reserve? -A movement from C to B -A movement from B to D -A movement from B to C -A movement from D to A -A movement from A to D

A movement from C to B

Refer to the figure above. Suppose the economy begins in long-run equilibrium. The Federal Reserve has decided the inflation rate is too high and implements a contraction in the money supply. What best describes the path the economy takes as a result of the contraction in the money supply and the subsequent adjustment to a new long-run equilibrium? -A to B to C -D to A to B -B to C to D -D to C to B -D to A to D

B to C to D

Refer to the figures above. Which graph best describes the effect of a decrease in price level, all else constant?

B) shift left

Which of the following would lead to a decrease in the multiplier effect of fiscal policy? -The income tax rate decreases -Household save a lower fraction of income -Households save a higher fraction of income -Households borrow more to finance spending.

Households save a higher fraction of income

Refer to the figure above. Suppose the economy is producing at point A. Which of the following best describes the adjustment back to the natural level of output? -Aggregate demand decreases and the new equilibrium point is D -Aggregate supply increases and in the new equilibrium point is D -Wages and input prices fall and the new equilibrium is point D -The economy will not adjust back to the natural level in this case -Wages and input prices rise and the new equilibrium in point B.

Wages and input prices rise and the new equilibrium in point B

In the short-run, an increase in aggregate supply leads to _____ price level and _____ in unemployment -a decrease / a decrease -an increase / an increase -an increase / a decrease -an increase / no change -a decrease / an increase

a decrease / a decrease

Refer to the figure above. Which of the following would cause a movement from point B to C? -a decrease in the wage rate -an increase in the price of energy, an input in production -an increase in value of household stock portfolios -a decrease in the personal income tax rate -a fall in housing prices

a fall in housing prices

An earthquake destroys capital stock in an economy. The result is -a rightward shift in the aggregate demand curve -a leftward shift in the long-run aggregate supply curve -a leftward shift in the short-run aggregate supply curve and no change in the long-run aggregate supply curve -a rightward shift in the long-run aggregate supply curve.

a leftward shift in the long-run aggregate supply curve

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted -aggregate supply left -aggregate demand right -aggregate supply right -aggregate demand left.

aggregate demand right

If the economy is producing below the natural rate of output in the short-run, wages and input prices will eventually ____ and ____ will increase, returning the economy to long-run equilibrium. -fall / long-run aggregate supply -rise / short-run aggregate supply -rise / aggregate demand -fall / short-run aggregate supply -fall / aggregate demand

fall / short-run aggregate supply

Examples of automatic stabilizers include government expenditures that ____ when national income decreases and help explain why deficits are ____ during recessions -increase / larger -do not change / larger -increase / smaller -decrease / smaller -decrease / larger

increase / larger

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller? -the MPC is small and changes in the interest rate have a large effect on investment -the MPC is large and changes in the interest rate have a large effect on investment -the MPC is small and changes in the interest rate have a small effect on investment -the MPC is large and changes in the interest rate have a small effect on investment

the MPC is small and changes in the interest rate have a large effect on investment

Which of the following accounts for about two-thirds of the decline in output during a recession? -the decline in net exports -the decline in investment spending -the decline in total consumption spending -the decline in government purchases.

the decline in investment spending

Liquidity refers to -how many time a dollar circulates in a given year -the measurement of the durability of a good -the measurement of the intrinsic value of commodity money -the ease with which an asset is converted to the medium of exchange.

the ease with which an asset is converted to the medium of exchange

Suppose the expected inflation rate increases from 5% to 8%. According to the Fisher effect -the real interest rate increases by 3 percentage points -the nominal interest rate decreases by 3 percentage points -the real interest rate decreases by 3 percentage points -the nominal interest rate increases by 3 percentage points.

the nominal interest rate increases by 3 percentage points

A favorable supply shock, like a decrease in the price of oil, would cause -a movement up and along the short-run Phillips curve . -the short-run Phillips curve to shift to the right and a less-favorable trade-off between unemployment and inflation. -the short-run Phillips curve to shift to the left and a more favorable trade-off between unemployment and inflation. -the short-run Phillips curve to shift to the right and no change in the trade-off between unemployment and inflation.

the short-run Phillips curve to shift to the left and a more favorable trade-off between unemployment and inflation