ECON 201 Quiz 4

According to the theory of liquidity preference, an increase in the price level causes the a. interest rate to rise and investment to fall. b. interest rate and investment to rise. c. interest rate to fall and investment to rise. d. interest rate and investment to fall.

a

As the price level rises a. people will want to buy fewer bonds, so the interest rate rises. b. people will want to buy more bonds, so the interest rate falls. c. people will want to buy more bonds, so the interest rate rises. d. people will want to buy fewer bonds, so the interest rate falls.

a

Economic expansions in Europe and China would cause a. the U.S. price level and real GDP to rise. b. the U.S. price level to fall and real GDP to rise. c. the U.S. price level and real GDP to fall. d. the U.S. price level to rise and real GDP to fall.

a

Figure 33-8. ​ Refer to Figure 33-8. Suppose the economy starts at Z. Stagflation would be consistent with the move to a. P3 and Y1 . b. P1 and Y1 . c. P3 and Y3 . d. P1 and Y3 .

a

Figure 34-1 ​ Refer to Figure 34-1. At an interest rate of 4 percent, there is an excess a. supply of money equal to the distance between points a and b. b. demand for money equal to the distance between points b and c. c. demand for money equal to the distance between points a and b. d. supply of money equal to the distance between points b and c.

a

Figure 34-8 Refer to Figure 34-8. An increase in taxes will a. shift aggregate demand from AD1 to AD3. b. shift aggregate demand from AD1 to AD2. c. have no effect on aggregate demand. d. cause movement from point A to point B along AD1.

a

If the Federal Reserve decreases the money supply, then initially there is a a. shortage in the money market, so people will want to sell bonds. b. shortage in the money market, so people will want to buy bonds. c. surplus in the money market, so people will want to sell bonds. d. surplus in the money market, so people will want to buy bonds.

a

In which of the following cases does the aggregate-demand curve shift to the right? a. The money supply increases, causing the interest rate to fall. b. The money supply decreases, causing the interest rate to fall. c. The price level falls, causing the interest rate to fall. d. The price level rises, causing the interest rate to fall.

a

Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some firms have a. higher than desired prices, which depresses their sales. b. lower than desired prices, which depresses their sales. c. higher than desired prices, which increases their sales. d. lower than desired prices, which increases their sales.

a

When the price level falls, people want to a. hold less money and the quantity of aggregate goods and services demanded increases. b. hold more money and the quantity of aggregate goods and services demanded increases. c. hold more money and the quantity of aggregate goods and services demanded decreases. d. hold less money and the quantity of aggregate goods and services demanded decreases.

a

Which of the following does not help explain the direction the quantity of aggregate goods demanded changes when the price level decreases? a. the dollar appreciates relative to other currencies b. consumer wealth rises c. each dollar is worth more domestic goods d. borrowing rises

a

A candidate for political office announces the following policies which, she says, economics clearly demonstrates will lead to higher output in the long run: 1. increase immigration from abroad 2. make trade more open between the US and other countries. a. 1 and 2 both shift long-run aggregate supply left. b. 1 and 2 both shift long-run aggregate supply right. c. 1 shifts long-run aggregate supply right, 2 shifts long-run aggregate supply left. d. 1 shifts long-run aggregate supply left, 2 shifts long-run aggregate supply right.

b

According to classical macroeconomic theory, a. output is determined by the supplies of capital and labor and the available production technology. b. All of the above are correct. c. given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. d. for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

b

Aggregate demand shifts right if at a given price level a. taxes fall and shifts left if the money supply increases. b. taxes fall and shifts right if the money supply increases. c. taxes rise and shifts left if the money supply increases. d. taxes rise and shifts right if the money supply increases.

b

If there is excess money supply, people will a. deposit more into interest-bearing accounts, and the interest rate will rise. b. deposit more into interest-bearing accounts, and the interest rate will fall. c. withdraw money from interest-bearing accounts, and the interest rate will rise. d. withdraw money from interest-bearing accounts, and the interest rate will fall.

b

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is a. $360. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand. b. $360. For this economy, an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand. c. $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand. d. $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand.

b

In the short run, a decrease in the money supply causes interest rates to a. increase, and aggregate demand to shift right. b. increase, and aggregate demand to shift left. c. decrease, and aggregate demand to shift right. d. decrease, and aggregate demand to shift left.

b

Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one-third as strong as the multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift? a. by $90 billion b. by $30 billion c. by $20 billion d. by $60 billion

b

Political Instability Abroad 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. Refer to Political Instability Abroad. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the U.S.? a. make it rise which by itself would increase U.S. aggregate demand. b. make it fall which by itself would increase U.S. aggregate demand. c. make it fall which by itself would decrease U.S. aggregate demand. d. make it rise which by itself would decrease U.S. aggregate demand.

b

The long-run aggregate supply curve shifts left if a. the government removes some environmental regulations that limit production methods. b. there is a natural disaster. c. the capital stock increases. d. None of the above is correct.

b

The theory of liquidity preference illustrates the principle that a. monetary policy must be described in terms of the money supply. b. monetary policy can be described either in terms of the money supply or in terms of the interest rate. c. monetary policy can be described either in terms of the exchange rate or the interest rate. d. monetary policy must be described in terms of the interest rate.

b

U.S. Financial Crisis 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. Refer to U.S. Financial Crisis. What would happen in the market for foreign-currency exchange? a. the supply of dollars would shift left and the exchange rate would rise. b. the supply of dollars would shift right and the exchange rate would fall. c. the supply of dollars would shift right and the exchange rate would rise. d. None of the above is correct.

b

When production costs rise, a. the short-run aggregate supply curve shifts to the right. b. the short-run aggregate supply curve shifts to the left. c. the aggregate demand curve shifts to the left. d. the aggregate demand curve shifts to the right.

b

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

b

According to the theory of liquidity preference, if output decreases a. people want to hold less money. This response is shown as a movement along the money demand curve. b. people want to hold more money. This response is shown as a movement along the money demand curve. c. people want to hold less money. This response is shown as a shift of the money demand curve. d. people want to hold more money. This response is shown as a shift of the money demand curve.

c

If the investment accelerator from an increase in government purchases is larger than the crowding-out effect, then a. the multiplier is probably equal to one. b. the multiplier is probably zero. c. the multiplier is probably greater than one. d. the multiplier is probably less than one.

c

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift a. aggregate supply left. b. aggregate supply right. c. aggregate demand right. d. aggregate demand left.

c

Other things the same, as the price level decreases it induces greater spending on a. net exports but not investment. b. investment but not net exports. c. both net exports and investment. d. neither net exports nor investment.

c

When the dollar appreciates, U.S. a. net exports rise, which increases the aggregate quantity of goods and services demanded. b. net exports rise, which decreases the aggregate quantity of goods and services demanded. c. net exports fall, which decreases the aggregate quantity of goods and services demanded. d. net exports fall, which increases the aggregate quantity of goods and services demande

c

Which of the following shifts short-run, but not long-run aggregate supply right? a. an increase in the money supply b. a decrease in the actual price level c. a decrease in the expected price level d. a decrease in the capital stock

c

An increase in the expected price level shifts short-run aggregate supply to the a. right, and an increase in the actual price level shifts short-run aggregate supply to the right. b. right, and an increase in the actual price level does not shift short-run aggregate supply. c. left, and an increase in the actual price level shifts short-run aggregate supply to the left. d. left, and an increase in the actual price level does not shift short-run aggregate supply.

d

If the Federal Reserve increases the money supply, then initially people want to a. sell bonds so the interest rate falls. b. buy bonds so the interest rate rises. c. sell bonds so the interest rate rises. d. buy bonds so the interest rate falls.

d

Optimism Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. Refer to Optimism. In the long run, the change in price expectations created by optimism shifts a. long-run aggregate supply left. b. short-run aggregate supply right. c. long-run aggregate supply right. d. short-run aggregate supply left.

d

Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP. To explain this a. it is only necessary that aggregate demand shifts right over time. b. None of the above cases would produce rising prices and growing real GDP over time. c. it is only necessary that long-run aggregate supply shifts right over time. d. both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must be shifting farther.

d

The recessions of the 1970s are often attributed to a. declining inflation expectations. b. decreases in the money supply. c. declines in the price of stock. d. an increase in oil prices.

d

When the money supply increases a. interest rates fall and so aggregate demand shifts left. b. interest rates rise and so aggregate demand shifts right. c. interest rates rise and so aggregate demand shifts left. d. interest rates fall and so aggregate demand shifts right.

d

When the price level falls a. the interest rate rises, so the quantity of goods and services demand rises. b. the interest rate rises, so the quantity of goods and services demand falls. c. the interest rate falls, so the quantity of goods and services demand falls. d. the interest rate falls, so the quantity of goods and services demand rises.

d

Which of the following correctly explains the crowding-out effect? a. A decrease in government expenditures decreases the interest rate and so reduces investment spending. b. A decrease in government expenditures increases the interest rate and so increases investment spending. c. An increase in government expenditures decreases the interest rate and so increases investment spending. d. An increase in government expenditures increases the interest rate and so reduces investment spending.

d

Which of the following is an example of a decrease in government purchases?​ a. ​The government increases personal income taxes. b. ​The government decreases unemployment insurance benefit payments. c. ​The Federal Reserve sells government bonds. d. ​The government cancels an order for new military equipment.

d

Which of the following is correct? a. An increase in the money supply causes the interest rate to decrease so that aggregate demand shifts left. b. An increase in stock prices reduces consumption spending so that aggregate demand shifts left. c. An increase in the price level causes the exchange rate to rise so that aggregate demand shifts left. d. A recession in other countries reduces U.S. net exports so that U.S. aggregate demand shifts left.

d