ECON - MIDTERM 2
What are the short-run effects of reducing inflation, through cutting the money supply growth rate? (a) A decrease in GDP growth rate, perhaps a recession. (b) An increase in GDP growth rate, perhaps an economic boom (c) A shift of the Solow growth curve (d) None of the above
A
When the actual inflation rate is greater than the anticipated inflation rate, which of the following is mostlikely to suffer? (a) Those who lend at a fixed interest rate (b) Those who borrow at a fixed interest rate (c) Those who lend with flexible interest rates (d) Employers who hire workers with long-term labor contracts
A
Which direction does the SRAS curve shift in when there is a decrease in expected inflation? (a) Right (b) Left (c) No shift (d) Right only if actual inflation decreases as well.
A
Which of the following assets would you classify as being most liquid? (a) Demand deposits (b) Small-time deposits (c) A home (d) Gold bullion
A
Which of the following does NOT occur when the government increases its borrowing? (a) There is less total savings in the economy (b) There is less private borrowing in the economy (c) There is less consumption in the economy (d) Interest rates are higher
A
Which of the following is a part of M2, but not of M1? (a) Savings deposits (b) Checking deposits (c) Retirement accounts (d) Currency outstanding
A
Which of the following is an example of active investing? (a) Buying Tesla stock one day and selling it for Snap stock the next day (b) Investing in an SP500 index fund and cashing it out 30 years later (c) Investing in a 401K (d) None of the above
A
Which of the following statements is not true about the velocity of money? (a) Changes in the growth of the velocity of money tend to be permanent (b) The velocity of money measures how many times a dollar is spent in the economy (c) The velocity of money tends to increase when the economy is experiencing a boom (d) A large increase in government spending would affect the growth of the velocity of money
A
Who benefits from an unexpected disinflation? (a) The lenders (b) The borrowers (c) Both the lenders and the borrowers (d) Neither the lenders and the borrowers
A
How would a trade war (a uniform increase in tariffs by multiple countries) that affects productivity butdoesn't change the growth in net export spending be represented in the AS-AD model?(a) Downward shift in the AD curve (b) Shift in the LRAS curve to the right (c) Shift in the LRAS curve to the left (d) Shift in the SRAS curve to the left
C
If inflation is 3% and real GDP growth is 5%, the aggregate spending in the economy must be growing at:(a) 2%(b) 5%(c) 8%(d) 15%
C
An increase inwill shift the SRAS curve. (a) Actual inflation, but not expected inflation, (b) Expected inflation, but not actual inflation, (c) Both actual inflation and expected inflation (d) Neither actual inflation nor expected inflation
B
An investor buys public equity of 3M in anticipation of a price increase due to a merger offer. This is anexample of: (a) A buy and hold investment strategy (b) Stock picking (c) Technical analysis (d) None of the above
B
During recession, many entrepreneurs get scared about the future an they are reluctant to invest. Whathappen to the equilibrium interest rate and quantity of loandable funds? (a) Both increase (b) Both decrease (c) Interest rate goes up, quantity down (d) Interest rate goes down, quantity up
B
Economic bubbles are created because of inflated (and in the short-run self-fulfilling) expectations of (a) interest rates (b) future asset prices (c) overall economic growth (d) earnings
B
If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $ 11-an-hour today when the CPI is120, then your real wage rate hassince 2005. (a) Increased 20% (b) Remained the same (c) Decreased (d) Increased 10%
C
Financial intermediaries: (a) Have liabilities that exceed their assets (b) Reduce the costs of moving savings from savers to borrowers and investors (c) Are inefficient middlemen, raising the cost of economic activity (d) profit by keeping resources in their least valuable uses
B
If American Steel hires you to advice them about the future developments in the price level, and how it canaffect their company, what price index should you look at more closely? Hint you can assume steel is neversold as a final good. (a) CPI (b) PPI (c) GDP Deflator (d) None of the above
B
If individuals in an economy become more patient what will happen to bond prices? (a) Decrease (b) Increase (c) Unaffected (d) Not enough information
B
In a country where inflation is small and stable over time, which of the following is/are true? (a) Short-term borrowing become riskier (b) Long-term loans become safer because the nominal interest rates can be reasonably predicted (c) Businesses substitute long-term investment projects with short-term projects to get quick return (d) None of the above
B
Suppose in Elenaland there is positive inflation and real GDP growth. Suddenly, consumers are more confidentin the economy. According to the AS-AD model, how would this affect price levels in the long-run? (a) Prices levels would increase (b) Prices levels would not change (c) Prices levels would decrease (d) None of the above
B
Suppose that households become more thrifty, what best characterizes the new equilibrium in the loanablefunds market? (a) Interest rate decreases, quantity of loanable funds decreases (b) Interest rate decreases, quantity of loanable funds increases (c) Interest rate increases, quantity of loanable funds increases (d) Interest rate increases, quantity of loanable funds decreases
B
The AD curves relates the inflation to (a) Growth in nominal GDP (b) Growth in real GDP (c) Growth in expenditure (d) Growth in saving
B
The Dynamic Aggregate Demand curve show (a) All the combinations of inflation and real growth that are consistent with a rate of expected inflation (b) All the combinations of inflation and real growth that are consistent with a rate of spending growth (c) All the combinations of inflation and real growth that are consistent with a economic growth of 5% (d) All the combinations of inflation and economic growth that are consistent with inflation rate of 5%
B
The Fed decreases the money growth rate today. In the context of the AS-AD model What do you expectto happen to U.S. output and inflation in the short-run? (a) Inflation increases, output increases (b) Inflation decreases, output decreases (c) Inflation increases, output decreases (d) Inflation decreases, output is unaffected
B
The United States government decides to borrow $10 billion to build a pipeline that will carry crude oil fromCanada to the Texas. What do you expect to happen to the loanable funds market? (a) Total quantity of loanable funds increases, private quantity of loanable funds increases, interest ratedecreases (b) Total quantity of loanable funds increases, private quantity of loanable funds decreases, interest rateincreases (c) Total quantity of loanable funds decreases, private quantity of loanable funds decreases, interest rateincreases (d) Total quantity of loanable funds increases, private quantity of loanable funds decreases, interest ratedecreases
B
What can you say about inflation in a country that uses a gold standard if the country's economy is growingand the velocity of money is stable? (a) Inflation will be positive (b) Inflation will be negative (c) Inflation will be zero (d) Not enough information
B
What is deflation? (a) An increase in the GDP deflator. (b) A decrease in the average price level. (c) A reduction in the rate of inflation. (d) The meaning varies depending on the context.
B
What is the crowding-out effect of government borrowing? (a) The decrease in private savings when the government borrows less (b) The decrease in private borrowing when the government borrows more (c) The budget deficit caused by increased government borrowing (d) The increase in private borrowing when the government issues bonds
B
Which condition would NOT lead financial intermediation to fail? (a) Politicized lending (b) Excessive numbers of banks (c) Insecure property rights (d) Controls on interest rates
B
Which event is NOT mentioned as a possible real shock that might hit the U.S. economy? (a) Wars (b) Changes in the growth rate of the money supply (c) Major new regulations (d) Changes in marginal tax rates
B
Which of the following does not affect the Solow growth curve (also know as the Long Run Aggregate SupplyCurve): (a) Aggregate stock of capital (b) Inflation (c) Level of technology (d) Level of human capital
B
Why do financial institutions choose to have a high leverage ratio? (a) High risk (b) High return if price increases (c) Great loss if price decreases (d) High return if price decreases
B
which of the following will an active investor try to achieve? (a) Avoid fees and trading costs (b) Pick stocks likely to outperform the market (c) Try to mimic the behavior of a broad stock index like S&P 500 (d) Disregard short-term market volatility
B
Disinflation is defined as : (a) A decrease in the average level of prices. (b) An increase in the average level of prices. (c) A reduction in the inflation rate. (d) An increase in the minimum level of prices. entrepreneurs
C
If you observe inflation and real GDP increase temporarily, and then return to their original values, which ofthe following could NOT have been the cause? (a) Increase in government spending (b) Business become more optimistic about economy (c) Increase in the money supply (d) Decrease in the oil price
C
In the AD-AS model, if the Federal Reserve decides to decrease the money supplyMgrowth rate (a) current output growth rate will fall, but the inflation will rise (b) current output growth rate and inflation will both rise (c) current output growth rate and inflation will both fall (d) current output growth rate will rise, but inflation will fall
C
In the AS-AD model, an increase in the money supply does which of the following? (a) Increases real GDP growth in short-run and long-run (b) Decreases real GDP growth in short-run and long-run (c) Increases real GDP growth in short-run and has no effect in long-run (d) Has no effect on real GDP growth in short-run but increases growth in long-run
C
Suppose the price of milk was $3 in 2005 and $3.10 in $2006 whilst the inflation rate was 100%. Which ofthe following reasons could explain why milk cheaper in 2006? ? (a) Milk is not cheaper in 2005 (b) Increased demand (c) Increased supply (d) None of the above
C
The Fisher effect is: (a) The tendency of GDP to rise with expected inflation (b) The tendency of real interest rates to rise with expected inflation (c) The tendency of nominal interest rates to rise with expected inflation (d) None of the above
C
The downward sloping demand curve in the market for loanable funds best reflects which of the following? (a) Individuals are willing to save more at higher interest rates (b) Individuals prefer to save less at lower interest rates (c) Fewer business prospects are profitable at higher interest rates (d) Individuals demand more loans when interest rates are higher
C
There is a positive rate of inflation if: (a) The prince index became smaller this year relative to last year. (b) The there are more prices increasing than decreasing. (c) The prices on average increase. (d) The prices for all goods decrease.
C
Which of the following best describes the effect of real shock in the context of the AS-AD model: (a) A shift of the aggregate demand curve (b) A shock to the money supply (c) A shock to the potential growth rate (d) Increase in expected inflation
C
Which of the following is NOT a role of the stock market? (a) Raise capital for firm investment (b) Signal the value of the firm (c) Directly generate profits for the firm (d) Transfer control of the firm to more competent people
C
Which of the following is false? (a) If prices and output grow more slowly than money supply then velocity growth is negative (b) If prices and the velocity of money grow at the same rate then money supply and output grow at thesame rate (c) If prices and money supply are fixed, an increase in output means velocity growth is negative (d) If prices and output grow faster than the velocity of money then money supply will increase
C
Why is the Solow Growth Curve vertical in the Dynamic AS-AD model? (a) Because potential growth is positively correlated with inflation (b) Because potential growth is negatively correlated with inflation (c) Because potential growth is not correlated with inflation (d) None of the above
C
Why would investment banks want a high leverage ratio? (a) To make them more illiquid (b) Protects them against financial shocks (c) With more access to funds the bigger profit they can make (d) None of the above
C
During a period of severe hyperinflation, we observe (a) Money becomes worthless (b) Inflation is out of control (c) The economy can turn back into a barter economy (d) All of the above
D
Given the empirical evidence, what is true about the stock market? (a) Using technical analysis, traders can beat the market consistently. (b) On average, over 90% of active mutual funds have beaten the market in the last 50 years. (c) On average, passive investors got negative returns on their investments in the last 50 years. (d) On average, the returns on stocks have been higher than the returns on bonds in the last 100 years.
D
In the AD-AS model discussed in class, the aggregate supply curve is: (a) vertical in both the short run and in the long run (b) upward sloping in the long run, but vertical in the short run (c) upward sloping in both the short run and in the long run (d) upward sloping in the short run, but vertical in the long run
D
Suppose companies and investors become very optimistic about the future of the economy. What would bethe effect of this situation in the loanable funds market? (a) The demand curve will shift up (or to the right) (b) The quantity of funds in equilibrium will increase (c) The interest rate in equilibrium will increase (d) All of the above
D
Which of the following isnota reason why the demand of loanable funds downward sloping? (a) At high interest rates, there are few investment opportunities that would guarantee a sufficient returnto repay interest on capital (b) At lower interest rates agents want to borrow more (c) At lower interest rates agents are likely to save more (d) At high interest rates, the price of savings is high
C
Which of the following securities provides the greatest diversification benefits to a portfolio consisting ofUnited States technology companies? (a) Wal-Mart corporate stock (b) A stock index of Korean technology firms (c) A stock index of European retailers (d) Apple Thecomputingcompanybonds
C
Which statement is true? (a) The present value of a zero-coupon bond is equal to its face value. (b) The present value of all bonds is equal to the present value of their face value. (c) The present value of a zero-coupon bond is equal to present value of its face value. (d) All of the above.
C
Due to the severe consequences of the crisis, the central bank decides to increase money supply growth from5% to 7%. What is the effect of this policy toward the aggregate demand curve? (a) The demand curve shifts upward (b) The demand curve shifts downward (c) The demand curve stays the same (d) The effect is unclear
D
Most economists believe that the aggregate supply curve is (a) vertical in both the short run and in the long run (b) upward sloping in the long run, but vertical in the short run (c) upward sloping in both the short run and in the long run (d) upward sloping in the short run, but vertical in the long run
D
5.Which of the following shocks would shift the long-run aggregate supply curve (Solow growth curve)? (a) Positive productivity shock (b) Increase in the growth rate of spending (c) Decrease in the level of inflation expectations (d) Lower degree of price stickiness in the economy
A
According to the Quantity Theory of Money, a country that uses the gold standard, has mined all its goldand has a fixed velocity of money, will experience (Assuming the country's output continues to grow) (a) Deflation (b) Inflation (c) Neither (d) Not enough information
A
According to the quantity theory of money, when does a deflation occur? (a) The money supply and the velocity of money grow more slowly than the real GDP (b) The real GDP increases (c) The money supply grows faster than the velocity of money and the real GDP (d) Both A and B
A
An increase in the expectations of inflation will: (a) Shift the SRAS curve upward (to the left) (b) Shift the AD curve upward (to the right) (c) Shift the Solow growth to the right (d) All of the above
A
Consider a bond which pays $50 on January 1 each year until 2025 and $1000 on January 1, 2025. The$1000 amount is called: (a) Face value (b) Coupon payment (c) Maturity date (d) Interest rate
A
How would the equilibrium interest rate be affected if people suddenly became more patient? (a) The equilibrium interest rate would decrease (b) The equilibrium interest rate would increase (c) The equilibrium interest rate would not change (d) Not enough information
A
If the government decides to sell more bonds, what would you expect to happen to the loanable fundsmarket? (a) Shift right in demand (b) Shift right in supply (c) Shift left in supply (d) No change
A
In the AS-AD framework, the government increases the money supply growth, then? (a) Output growth and inflation are temporary higher (b) Output growth is permanently higher (c) Only output growth is temporary higher( d) Output growth and inflation don't change
A
In the long run an increase in money supply, everything else being constant, will: (a) Increase the average price level and output will not increase. (b) Increase output and reduce the average price level. (c) Reduce the average price level and output will not increase. (d) Increase the average price level and output will increase.
A
Suppose in Moneyland there is positive inflation and real GDP growth. Suddenly, the government increasesthe growth rate of spending. According to the AS-AD model, how would this effect inflation rate in thelong-run? (a) Inflation rate would not change (b) Inflation rate would increase (c) Inflation rate would decrease (d) None of the above
A
Suppose you agree to a bank loan at a nominal rate of 5% to finance your new business venture. You expectan inflation rate of 2% over the course of the loan. If inflation unexpectedly is 3%... (a) The bank's realized rate of return on the loan will be higher than you expected (b) The real interest rate you will pay on your loan will be higher than you expected (c) You will have to compensate the bank for the unexpected increase in inflation (d) The real interest rate you will pay on your loan will be lower than you expected
D
Suppose you earn $10000 a month. You spend $7000 a month on food, clothes and housing. You keep therest in a savings account, in order to use it for retirement. What is your savings rate? (a) $3000 (b) 70% (c) $7000 (d) 30%
D
Consider the quantity theory of money. Suppose the quantity of money in an economy increased 21% fromone year to the next while the quantity of goods produced (output) increased 10%. Assuming that moneyvelocity was constant over the two periods that implies that: (a) Prices increased by 11%. (b) Prices increased by 10%. (c) Prices decreased by 10%. (d) None of the above.
A
How would a stock market crash be reflected in the AS-AD model? (a) Downward shift in the AD curve (b) Shift in the LRAS curve to the right (c) Shift in the LRAS curve to the left (d) Shift in the SRAS curve to the left
A
Suppose that individuals fear that an recession is around the corner, what do you expect to happen to realGDP and inflation in the short run? (a) Lower inflation and real GDP growth (b) Lower inflation only (c) Lower real GDP growth only (d) Fear of a recession has no effect
A
The aggregate demand curve in the AD-AS model is a graphic representation of: (a) Quantity theory of money (b) Solow model (c) Central bank policy (d) Inflation expectations
A
Suppose the U.S. introduces a policy of giving a tax credit to individuals with a mortgage, as part of a policyinitiative to get more people to own their own homes. What do you expect to happen in the market forloanable funds? (a) Lower interest rate, and lower quantity of saving/borrowing (b) Higher interest rate, and lower quantity of saving/borrowing (c) Lower interest rate, and higher quantity of saving/borrowing (d) Higher interest rate, and higher quantity of saving/borrowing
D
Suppose the government stops printing money and the velocity of money remains unchanged while the realGDP growth rate was 3% per year. According to the quantity theory of money, what is the inflation rate?(a) 3%(b) 1%(c) -1%(d) -3%
D
The asset-backed securities are created by a process called (a) Arbitrage (b) Deleveraging (c) Debt accumulation (d) Securitization
D
The average number of times that a dollar is spent in buying the total amount of final goods and servicesproduced during a given time period is known as (a) Gross national product (b) Spending multiplier (c) Money multiplier (d) Velocity
D
The government announces that, they will decrease the supply of government bonds by $100 billion. Whatdo you expect to happen on the loanable funds market? (You can assume this new policy has no effect ontaxes). (a) Higher interest rate, more private borrowing (b) Lower interest rate, more overall (private and government) borrowing (c) Higher interest rate, unclear effect on private borrowing (d) Lower interest rate, more private borrowing
D
The purchase of new capital goods is defined as : (a) Saving(b) Wealth(c) Consumption(d) Investment
D
What happens to the price level if the velocity of money falls, the money supply increases, and real GDPfalls? (a) Rises (b) Falls (c) Stays constant. (d) Not enough information.
D
What is included in M2: (a) Savings deposits (b) Money market mutual funds (c) Currency (d) All of the above
D
What is the potential cost of inflation? (a) Inflation gives us more money to buy stuffs (b) Inflation is a type of tax (c) Inflation makes price signals more difficult to interpret (d) Both B and C
D
What will be the impact of a permanent, negative aggregate demand shock? (a) Higher inflation and output growth both in short- and long-run (b) Higher inflation and output growth in the short-term, lower inflation and higher output growth in thelong-run (c) Lower inflation and higher output growth in the short term, only higher inflation in the long term (d) Lower inflation and output growth in the short-run, only lower inflation in the long-run
D
Which asset would you expect to have the highest rate of return? (a) US 1-year bond (b) Germany 1-year bond (c) Canada 1-year bond (d) Turkish 1-year bond
D
Which is not a shifter of the aggregate demand curve (a) Fear of economic collapse (b) Higher taxes (c) Changes in money supply growth (d) Increase in expected inflation
D
Which of the following did NOT contribute to the Great Depression? (a) A decrease in money supply due to stock market crash and bank failures (b) Increase in tariffs aimed at boosting demand for domestic goods (c) A period of severe dust storms and drought in the Great Plains area ("Dust Bowl") (d) Large growth in money supply which lead to hyperinflation
D
Which of the following will shift the Aggregate Demand curve to the left (a) A decrease in oil prices (b) An increase in oil prices (c) An increase in money supply growth (d) A decrease in consumer confidence
D
Why is the additional growth from an unexpected increase in the money supply growth rate by the governmentonly temporary? (a) Because prices are sticky in the short run. (b) Because unexpected inflation ultimately becomes expected inflation. (c) Because prices are flexible in the long run. (d) Both (b) and (c).
D