Quiz 3+4
Which of the following countries has adopted the U.S. dollar as its own currency? Ecuador Mexico Canada France Australia
Ecuador
Suppose there is a fiscal contraction. Which of the following is a complete list of the variables that must decrease? consumption consumption and investment consumption and output consumption, output and investment consumption, output and the interest rate
consumption and output
For each interest rate, the LM curve illustrates the level of output where the goods market is in equilibrium. inventory investment equals zero. money supply equals money demand. none of the above
money supply equals money demand.
If government spending and taxes decrease by the same amount, the IS curve does not shift. the IS curve shift leftward. the IS curve shifts rightward. the LM curve shifts downward.
the IS curve shift leftward.
Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest rate. Given this information, we know that the bond's price must be $869.56. $1150. $850. $950.
$869.56.
Which of the following occurs as the economy moves rightward along a given IS curve? A reduction in the interest rate causes investment spending to increase. A reduction in the interest rate causes money demand to increase. A reduction in the interest rate causes a reduction in the money supply. An increase in government spending causes a reduction in demand for goods. A reduction in taxes causes a reduction in demand for goods.
A reduction in the interest rate causes investment spending to increase.
Which of the following is the definition for the real supply of money? The stock of money measured in terms of goods, not dollars. The stock of high powered money only. The real value of currency in circulation only. The actual quantity of money, rather than the officially reported quantity.
The stock of money measured in terms of goods, not dollars.
A Fed purchase of securities will most likely have which of the following effects? a rightward shift in the IS curve a leftward shift in the IS curve an upward shift in the LM curve a downward shift in the LM curve
a downward shift in the LM curve
A reduction in the aggregate price level, P, will most likely have which of the following effects? a rightward shift in the IS curve a leftward shift in the IS curve an upward shift in the LM curve a downward shift in the LM curve
a downward shift in the LM curve
Based on our understanding of the IS-LM model that takes into account dynamics, we know that a reduction in government spending will cause an immediate drop in Y and immediate increase in i. an immediate reduction in i and no initial change in Y. a gradual reduction in i and gradual reduction in Y. a gradual reduction in i and an immediate reduction in Y.
a gradual reduction in i and gradual reduction in Y.
We would expect which of the following to occur when the central bank pursues contractionary monetary policy? an increase in bond prices and an increase in the interest rate (i) a reduction in bond prices and an increase in the interest rate (i) an increase in bond prices and a reduction in the interest rate (i) a reduction in bond prices and a reduction in the interest rate (i) none of the above
a reduction in bond prices and an increase in the interest rate (i)
The IS curve will not shift when which of the following occurs? reduction in government spending a reduction in the interest rate a reduction in consumer confidence none of the above
a reduction in the interest rate
Which of the following will cause an increase in the amount of money that one wishes to hold? an increase in the interest rate a reduction in the interest rate a reduction in income none of the above
a reduction in the interest rate
A fiscal contraction will tend to cause which of the following to occur? a reduction in the interest rate and a reduction in investment a reduction in the interest rate and an upward shift in the LM curve a reduction in the interest rate and an ambiguous effect on investment no change in output if the Fed simultaneously pursues contractionary monetary policy
a reduction in the interest rate and an ambiguous effect on investment
An open market sale of securities will tend to cause a reduction in the supply of central bank money. a reduction in the demand for currency. a reduction in the demand for reserves. none of the above
a reduction in the supply of central bank money.
An increase in government spending will likely have which of the following effects? a rightward shift in the IS curve a leftward shift in the IS curve an upward shift in the LM curve a downward shift in the LM curve
a rightward shift in the IS curve
Suppose the current level of output and the interest rate are such that the economy is operating on neither the IS nor LM curve. Which of the following is true for this economy? Production does not equal demand. The money supply does not equal money demand. The quantity supplied of bonds does not equal the quantity demanded of bonds. Financial markets are not in equilibrium. all of the above
all of the above
Which of the following affects demand for money? prices nominal income interest rate all of the above none of the above
all of the above
Which of the following events will cause the interest rate to increase? an open market sale of bonds an increase in the reserve deposit ratio (i.e., θ) an increase in income all of the above
all of the above
Based on our understanding of the determinants of the interest rate and bond prices, we know that a reduction in income will cause an increase in bond prices and an increase in the interest rate (i). a reduction in bond prices and an increase in the interest rate (i). a reduction in bond prices and a reduction in the interest rate (i). an increase in bond prices and a reduction in the interest rate (i).
an increase in bond prices and a reduction in the interest rate (i).
The interest rate will increase as a result of which of the following events? an increase in income an open market purchase of bonds by the central bank a reduction in income all of the above none of the above
an increase in income
Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut? no change in output and no change in the interest rate an increase in output and an increase in the interest rate an increase in output and little change in the interest rate an increase in output and a reduction in the interest rate
an increase in output and little change in the interest rate
Suppose there is a simultaneous Fed sale of bonds and increase in consumer confidence. We know with certainty that these two simultaneous events will cause an increase in the interest rate (i). a reduction in i. an increase in output (Y). a reduction in Y.
an increase in the interest rate (i).
An increase in the reserve deposit ratio, θ, will most likely have which of the following effects? a rightward shift in the IS curve a leftward shift in the IS curve an upward shift in the LM curve a downward shift in the LM curve
an upward shift in the LM curve
Which of the following is a characteristic of bonds? pay zero nominal interest can be used for transactions are sold for a price that varies inversely with the interest rate all of the above none of the above
are sold for a price that varies inversely with the interest rate
Which of the following is an asset of a central bank? currency bonds reserves none of the above
bonds
Which of the following is not an asset on a bank's balance sheet? reserves loans checkable deposits all of the above
checkable deposits
Which of the following is a liability for the central bank? currency bonds savings accounts loans checkable deposits
currency
Which of the following is a component of high powered money? bonds held by banks, loans, and bank reserves currency in circulation plus bank reserves currency in circulation plus checkable deposits bonds held by banks plus checkable deposits the sum of currency in circulation, bank reserves, and checkable deposits
currency in circulation plus bank reserves
Which of the following triggered the U.S. recession of 2001? decline in consumption demand decline in investment demand increase in budget deficit increase in trade deficit
decline in investment demand
Which of the following conditions will most likely coincide with the existence of a liquidity trap? inflation is rising inflation is constant inflation is zero individuals prefer to hold only money and not bonds
individuals prefer to hold only money and not bonds
The LM curve shifts down (or, equivalently, to the right) when which of the following occurs? an increase in taxes an increase in output an open market sale of bonds by the central bank an increase in consumer confidence none of the above
none of the above
The federal funds rate is determined in which of the following markets? the market for U.S. treasury securities the money market the bond market the market for central bank money none of the above
none of the above
The money demand curve will shift to the left when which of the following occurs? a reduction in the interest rate an increase in the interest rate an open market sale of bonds by the central bank an increase in income none of the above
none of the above
When a liquidity trap situation exists, we know that an open market operation will have no effect on the supply of money. an open market operation will have no effect on the monetary base. fiscal policy will have no effect on the demand for goods. expansionary monetary policy will be deflationary. none of the above
none of the above
Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty that output will increase. output will decrease. the interest rate will increase. the interest rate will decrease. both output and the interest rate will increase.
output will increase.
Suppose investment spending is not very sensitive to the interest rate. Given this information, we know that he IS curve should be relatively flat. the IS curve should be relatively steep. the LM curve should be relatively flat. the LM curve should be relatively steep.
the IS curve should be relatively steep.
Which of the following best defines the LM curve? the combinations of i and Y that maintain equilibrium in the goods market illustrates the effects of changes in i on investment illustrates the effects of changes in i on desired money holdings by individuals the combinations of i and Y that maintain equilibrium in financial markets
the combinations of i and Y that maintain equilibrium in financial markets
The IS curve represents he single level of output where the goods market is in equilibrium. the single level of output where financial markets are in equilibrium. the combinations of output and the interest rate where the money market is in equilibrium. the combinations of output and the interest rate where the goods market is in equilibrium.
the combinations of output and the interest rate where the goods market is in equilibrium.