Economics Final Exam

The supply of money increases when a. the price level falls. b. the interest rate increases. c. the Fed makes open-market purchases. d. money demand increases.

d. money demand increases.

The money demand curve will shift to the left when which of the following occurs? a. a reduction in the interest rate b. an increase in the interest rate c. an open market sale of bonds by the central bank d. an increase in income e. none of these

e. none of these

Which of the following will occur when the central bank pursues expansionary monetary policy? a. a leftward shift in the money demand curve and a leftward shift in the money supply curve b. a rightward shift in the money demand curve and a leftward shift in the money supply curve. c. a leftward shift in the money demand curve and a rightward shift in the money supply curve. d. a rightward shift in the money demand curve and a rightward shift in the money supply curve. e. none of these

e. none of these

If policymakers increase taxation, then in the short run the price level... A. Falls and unemployment rises B. Unemployment fall C. Unemployment rise D. Rises and unemployment falls

A. Falls and unemployment rises

If the money multiplier is 3 and the fed buys 50,000 worth of bonds what happens to the money supply? A. increases by $100,000 B. increases by $150,000 C. decreases by $100,000 D. decreases by $200,000

B. increases by $150,000

The demand for money curve will shift to the RIGHT when which of the following happens... A. reduction in the interest rate B. An increase in the interest rate C. an open market sale of bonds by the central bank D. an increase in nominal income E. none of these

D. an increase in nominal income

The money demand curve will shift to the left when which of the following occurs? A. A reduction in the interest rate B. an increase in the interest rate C. an open market sale of bonds by the central bank D. an increase in income E. none of these

E. none of these

An increase in income will tend to cause which of the following?

an increase in the interest rate

Which of the following will cause an increase in the amount of money that one wishes to hold? a. an increase in the interest rate increase b. a reduction in the interest rate increase c. a reduction in income d. none of these

b. a reduction in the interest rate increase

Which of the following is an asset of a central bank? a. currency b. bonds c. reserves d. none of these

b. bonds

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. In the long run, what happens to the expected price level and what impact does this have on wage bargaining? a. The expected price level rises. New wage contracts are negotiated at lower wages. b. The expected price level rises. New wage contracts are negotiated at higher wages. c. The expected price level falls. New wage contracts are negotiated at lower wages. d. The expected price level falls. New wage contracts are negotiated at higher wages.

c. The expected price level falls. New wage contracts are negotiated at lower wages.

An increase in the proportion of money individuals wish to hold as currency, will tend to cause which of the following? a. no change in the money multiplier b. an increase in the money multiplier c. a reduction in the money multiplier d. none of these

c. a reduction in the money multiplier

Which of the following would cause stagflation? a. Aggregate demand shifts right. b. Aggregate demand shifts left. c. Aggregate supply shifts right. d. Aggregate supply shifts left.

d. Aggregate supply shifts left.

In 2008, the United States was in recession. Which of the following things would you not expect to have happened? a. Increased layoffs and firings b. A higher rate of bankruptcy c. Increased claims for unemployment insurance d. Increased real GDP

d. Increased real GDP

Which of the following events will cause the interest rate to increase? A. an open market sale of bonds. B. an increase in the reserve deposit ratio C. an increase in income D. all of these

A. an open market sale of bonds.

Aggregate Demand includes

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

The demand for money is given by Md = $Y (0.3 - i), where $Y = 100 and the supply of money is $20. If the centrol bank sets the targeted interest rate at 5%, what is the new money supply? a. $30 b. $25 c. $15 d. $35

b. $25

In the short-run an increase in the costs of production makes a. both output and prices rise. b. output rise and prices fall. c. output fall and prices rise. d. both output and prices fall.

c. output fall and prices rise.

An open market sale of securities will tend to cause a. a reduction in the supply of central bank money. b. a reduction in the demand for currency. c. a reduction in the demand for reserves. d. none of these

a. a reduction in the supply of central bank money.

The initial impact of an increase in an investment tax credit is to shift aggregate a. demand right. b. demand left. c. supply right. d. supply left.

a. demand right.

In which case can we be sure aggregate demand shifts left overall? a. People want to save more for retirement and the Fed increases the money supply. b. People want to save more for retirement and the Fed decreases the money supply. c. People want to save less for retirement and the Fed increases the money supply. d. People want to save less for retirement and the Fed decreases the money supply.

b. People want to save more for retirement and the Fed decreases the money supply.

The measure of the money stock called M1 includes

wealth held by people in currency

Suppose a one-year discount bond offers to pay $1000 in one year and currently sells for $950. Given this information, we know that the interest rate on the bond is a. 5.3%. b. 9.5%. c. 10%. d. 90%. e. 110%.

a. 5.3%.

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. Which curve shifts and in which direction? a. Aggregate demand shifts left. b. Aggregate demand shifts right. c. Aggregate supply shifts left. d. Aggregate supply shifts right.

a. Aggregate demand shifts left.

Which of the following is not a determinant of the long-run level of real GDP? a. The price level b. The amount of capital used by firms c. Available stock of human capital d. Available technology

a. The price level

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

a. more profitable and employment and output rises.

At the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that a. the price of bonds will tend increase. b. the price of bonds will tend to fall. c. production equals demand. d. the goods market is also in equilibrium.

a. the price of bonds will tend increase.

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate a. $10,500 of money. b. $10,000 of money. c. $9,500 of money. d. $2,500 of money.

b. $10,000 of money.

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can, given the reserve requirement. It follows that the reserve requirement is a. 2.5 percent. b. 33.3 percent. c. 25 percent. d. 75 percent.

c. 25 percent.

In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right? a. Only the increased funding for states b. Only the tax cuts c. Both the increased funding for states and the tax cuts. d. Neither the increased funding for states nor the tax cuts

c. Both the increased funding for states and the tax cuts.

Which of the following affects demand for money? a. prices b. nominal income c. interest rate d. all of these e. none of these

d. all of these

Imagine that in the current year economy is in long-run equilibrium. Then the federal government reduces purchases of goods by 50%. In the short run what happens to the price level and real GDP? A. Both the price level and real GDP fall. B. Both the price level and real GDP rise. C. The price level falls and real GDP rises. D. The price level rises and real GDP falls.

A. Both the price level and real GDP fall.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement... A. It has $80 in reserves and 9,920 in loans B. It has $800 in reserves and 9,200 in loans C. It has $1,250 in reserves and 8,750 in loans D. It has $8,000 in reserves and 2,000 in loans

B. It has $800 in reserves and 9,200 in loans

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change? a. It falls by $12 billion. b. It falls by $19 billion. c. It falls by $21 billion. d. It rises by $19 billion.

a. It falls by $12 billion.

We would expect which of the following to occur when the central bank conducts an open market sale of bonds? a. a reduction in the money supply b. a reduction in the money multiplier c. an increase in the money supply d. an increase in the money multiplier

a. a reduction in the money supply

The interest rate will increase as a result of which of the following events? a. an increase in income b. an open market purchase of bonds by the central bank c. a reduction in income d. all of these e. none of these

a. an increase in income

The money demand curve will shift to the right when which of the following occurs? a. an increase in income b. a reduction in the interest rate c. an increase in the money supply d. all of these e. none of these

a. an increase in income

If the Federal Open Market Committee decides to increase the money supply, it a. creates dollars and uses them to purchase government bonds from the public. b. sells government bonds from its portfolio to the public. c. creates dollars and uses them to purchase various types of stocks and bonds from the public. d. sells various types of stocks and bonds from its portfolio to the public

a. creates dollars and uses them to purchase government bonds from the public.

From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate a. demand right. b. demand left. c. supply right. d. supply left.

a. demand right.

For this question, assume that individuals do not hold currency. If the ratio of reserves to deposits is .10, the money multiplier is a. .1. b. .9. c. 4. d. 5. e. 10.

e. 10.

Aggregate demand includes a. the quantity of goods and services the government, households, firms, and customers abroad want to buy. b. neither the quantity of goods and services the government, households, nor firms want to buy nor the quantity of goods and services customers abroad want to buy. c. the quantity of goods and service the government wants to buy, but not the quantity of goods and services households, firms, or customers abroad want to buy. d. the quantity of goods and services households and firms want to buy, but not the quantity of goods and services the government wants to buy.

a. the quantity of goods and services the government, households, firms, and customers abroad want to buy.

The demand for money is given by Md = $Y (0.3 - i), where $Y = 120 and the supply of money is $30. What is the equilibrium interest rate? a. 10% b. 5% c. 3% d. 2%

b. 5%

Which of the following would shift the long-run aggregate supply curve right? a. Both an increase in the capital stock and an increase in the price level. b. An increase in the capital stock, but not an increase in the price level. c. An increase in the money supply, but not an increase in the capital stock. d. Neither an increase in the money supply nor an increase in the capital stock.

b. An increase in the capital stock, but not an increase in the price level.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement. a. It has $80 in reserves and $9,920 in loans. b. It has $800 in reserves and $9,200 in loans. c. It has $1,250 in reserves and $8,750 in loans. d. It has $8,000 in reserves and $2,000 in loans.

b. It has $800 in reserves and $9,200 in loans.

The money supply will tend to fall when which of the following occurs? a. a central bank sale of bonds b. a decrease in the ratio of reserves to deposits c. a shift in public preferences away from currency to checkable deposits e. all of these f. none of these

b. a decrease in the ratio of reserves to deposits

The price level rises in the short run if a. aggregate demand or aggregate supply shifts left. b. aggregate demand shifts right or aggregate supply shifts left. c. aggregate demand shifts left or aggregate supply shifts right. d. aggregate demand or aggregate supply shifts right.

b. aggregate demand shifts right or aggregate supply shifts left.

When the market for money is drawn with the value of money (interest rate) on the vertical axis and the quantity of money on the horizontal axis, the money demand curve slopes a. upward, because at higher interest rates people want to hold more money. b. downward, because at higher interest rates people want to hold more money. c. downward, because at higher interest rates people want to hold less money. d. upward, because at higher interest rates people want to hold less money.

b. downward, because at higher interest rates people want to hold more money.

Other things the same, if technology increases, then in the long run a. both output and prices are higher. b. output is higher and prices are lower. c. output is lower and prices are higher. d. both output and prices are lower.

b. output is higher and prices are lower.

In countries that have high minimum wages and require a lengthy and costly process to get permission to open a business, a. reducing either the minimum wage or the time and cost to open a business would have no effect on the long-run aggregate supply curve. b. reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right. c. reducing the minimum wage would shift long-run aggregate supply to the right. Reducing the time and cost to open a business would have no affect on the long-run aggregate supply curve. d. reducing the minimum wage would have no affect on the long-run aggregate supply curve. Reducing the time and cost to open a business would shift the long-run aggregate supply curve to the right.

b. reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right.

Based on our understanding of the determinants of the interest rate and bond prices, we know that a reduction in income will cause a. an increase in bond prices and an increase in the interest rate (i). b. a reduction in bond prices and an increase in i. c. an increase in bond prices and a reduction in i. d. a reduction in bond prices and a reduction in i. e. none of these

c. an increase in bond prices and a reduction in i.

The effect of an increase in the price level on the aggregate-demand curve is represented by a a. shift to the right of the aggregate-demand curve. b. shift to the left of the aggregate-demand curve. c. movement to the left along a given aggregate-demand curve. d. movement to the right along a given aggregate-demand curve.

c. movement to the left along a given aggregate-demand curve.

Which of the following events will cause the interest rate to increase? a. an open market sale of bonds b. an increase in the reserve deposit ratio c. an increase in income d. all of these

d. all of these

Which of the following is a component of money? a. coins held by the nonbank public b. bills held by banks c. checkable deposits d. all of these

d. all of these

Which of the following will cause the money multiplier to become smaller? a. an increase in money supply b. a decrease in the ratio of reserves to checkable deposits c. an increase in the public's preference for checking deposits as opposed to holding currency d. a reduction in money supply e. none of these

e. none of these

An increase in government purchases will... A. shift aggregate demand from AD2 to AD1. B. shift aggregate demand from AD2 to AD3. C. cause movement from point A to point B along AD2 D. have no effect on aggregate demand

A. shift aggregate demand from AD2 to AD1.

If the Federal Reserve increases the money supply, and the price level does not change... A. there will be an incrtease in the equilibrium quantitity of goods and services demanded. B. there will be a decrease in the equilibrium quantity of goods and services demanded C. there will be an increase in the equilibrium interest rate D. fewer firms will choose to borrow to build new factories and buy new equipment.

A. there will be an incrtease in the equilibrium quantitity of goods and services demanded.

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short-run, real GDP will... A. Rise and the price level might rise, fall or stay the same. In the long run, the price level might rise, fall, or stay tye same but real GDP will be unaffected. B. Fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. C. Rise amd the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. D. Fall and price level might rise, fall or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.

B. Fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected.

The interest rate will decrease as a result of which the following events... A. an increase in income B. an open market purchase of bonds by the central bank C. an open market sales of bonds by the central bank D. all of these E. None of these

B. an open market purchase of bonds by the central bank

In a system of 100-percent-reserve banking... A. banks do not accept deposits B. banks do not influence the supply of money C. loans are the only asset item for banks D. banks can increase the money supply

B. banks do not influence the supply of money

Which of the following generally occurs when a central bank pursues expansionary monetary policy? A. the central bank purchases bonds and the interest rate increases B. the central bank purchases bonds and the interest rate decreases C. the central bank sells bonds and the interest rate increases D. the central bank sells bonds and the interest rate decreases

B. the central bank purchases bonds and the interest rate decreases

In an economy with commercial banks with the required ratio of the reserve to deposit of 0.2, an individual's initial deposit of 1000 units at a commercial bank will eventually generate... A. 2000 units of overall money B. 1250 units of overall money C. 5000 units of overall money D. 1200 units of overall money

C. 5000 units of overall money

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, the money demand curve slopes... A. Upward, because at higher prices people want to hold more money. B. Downward, because at higher prices people wasn't to hold more money. C. Downward, because at high prices people want to hold less money. D. Upward, because at higher prices people want to hold less money.

C. Downward, because at high prices people want to hold less money.

If the interest rate were below the level the federal reserve had targeted, the fed could move the rate back towards its target by... A. Buying bonds. This buying would reduce the money supply B. Buying bonds. This buying would increase the money supply C. Selling bonds. This selling would reduce the money supply D. Selling bonds. This selling would increase the money supply

C. Selling bonds. This selling would reduce the money supply

Which of the following affects demand for money? A. nominal income B interest rate C. all of the above D. none of above

C. all of the above

According to the misperceptions theory of short-run aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had a. increased, so it would increase production. b. increased, so it would decrease production. c. decreased, so it would increase production. d. decreased, so it would decrease production.

a. increased, so it would increase production.

When the Fed buys bonds the supply of money a. increases and so aggregate demand shifts right. b. decreases and so aggregate demand shifts left. c. decreases and so aggregate demand shifts right. d. increases and so aggregate demand shifts left.

a. increases and so aggregate demand shifts right.

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to a. rise. This rise in price expectations shifts the short-run aggregate supply curve to the right. b. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left. c. fall. This fall in price expectations shifts the short-run aggregate supply curve to the right. d. fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.

b. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift a. aggregate supply to the right. b. aggregate supply to the left. c. aggregate demand to the right. d. aggregate demand to the left.

c. aggregate demand to the right.

We would expect which of the following to occur when the central bank pursues expansionary monetary policy? a. an increase in bond prices and an increase in the interest rate (i) b. a reduction in bond prices and an increase in i c. an increase in bond prices and a reduction in i d. a reduction in bond prices and a reduction in i e. none of these

c. an increase in bond prices and a reduction in i

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then the price level would a. fall, so the interest rate would fall. b. fall, so the interest rate would rise. c. rise, so the interest rate would fall. d. rise, so the interes rate would rise.

c. rise, so the interest rate would fall.

If the interest rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by a. buying bonds. This buying would reduce the money supply. b. buying bonds. This buying would increase the money supply. c. selling bonds. This selling would reduce the money supply. d. selling bonds. This selling would increase the money supply.

c. selling bonds. This selling would reduce the money supply.

Which of the following generally occurs when a central bank pursues contractionary monetary policy? a. the central bank purchases bonds and the interest rate increases. b. the central bank purchases bonds and the interest rate decreases. c. the central bank sells bonds and the interest rate increases. d. the central bank sells bonds and the interest rate decreases.

c. the central bank sells bonds and the interest rate increases.

Which of the following is correct? a. The Federal Reserve has 14 regional banks. The Board of Governors has up to 12 members who serve 7-year terms. b. The Federal Reserve has 14 regional banks. The Board of Governors has up to 7 members who serve 14-year terms. c. The Federal Reserve has 12 regional banks. The Board of Governors has up to 12 members who serve 7-year terms. d. The Federal Reserve has 12 regional banks. The Board of Governors has up to 7 members who serve 14-year terms.

d. The Federal Reserve has 12 regional banks. The Board of Governors has up to 7 members who serve 14-year terms.

If the Fed raised the reserve requirement, the money supply would a. increase, so the interest rate would fall. b. increase, so the interest rate would rise. c. decrease, so the interest rate would fall. d. decrease, so the interest rate would rise.

d. decrease, so the interest rate would rise.

An increase in household saving causes consumption to a. rise and aggregate demand to increase. b. rise and aggregate demand to decrease. c. fall and aggregate demand to increase. d. fall and aggregate demand to decrease.

d. fall and aggregate demand to decrease.

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will a. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. b. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. c. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. d. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.

d. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.

If the reserve requirement is 7 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $200, it a. must increase required reserves by $28. b. will initially see reserves decrease by $200. c. will be able to use this deposit to make new loans amounting to $200. d. must increase required reserves by $14.

d. must increase required reserves by $14.

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%.In the long run, the change in price expectations created by the reduction of federal government purchases a. long-run aggregate supply left. b. long-run aggregate supply right. c. short-run aggregate supply left. d. short-run aggregate supply right.

d. short-run aggregate supply right.

An increase in the interest rate will cause a. a reduction in the supply of central bank money. b. a reduction in the demand for currency. c. a reduction in the demand for reserves. d. all of these. e. a reduction in the demand for currency.

e. a reduction in the demand for currency.