Macroeconomics
Which of the following is NOT one of the reasons that the Japanese tend to keep large amounts of cash? A) Banks have invested heavily in credit card technology. B) Japan has a low crime rate. C) Interest rates in Japan have been below 1% since the 1990s. D) Japan's retail sector is dominated by small, mom-and-pop stores that don't use credit card technology.
(A) Banks have invested heavily in credit card technology.
The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. By how much did the monetary base change? A) $0 B) $800 C) $1,000 D) $4,000
A) $0
If the currency in circulation is $100 million, checkable bank deposits are $500, savings deposits are $300 million, and travelers' checks are $10 million, then the M1 money supply is: A) $410 million. B) $900 million. C) $100 million. D) $610 million.
A) $410 million
The monetary aggregates from most liquid to least liquid are: A) M1, M2 and M3. B) M3, M2 and M1. C) M2, M3 and M1. D) M3, M1, and M2.
A) M1, M2 and M3.
Suppose that consume expectations about the future improve. How will this affect the aggregate demand curve? A) The aggregate demand curve shifts to the right. B) There will be movement downward along the fixed aggregate demand curve. C) There will be movement upward along the fixed aggregate demand curve. D) The aggregate demand curve shifts to the left.
A) The aggregate demand curve shifts to the right.
An example of a double coincidence of wants is: A) a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired B) a car dealer who wants a TV finding an electronics store owner who wants money C) an electronics store owner who wants car repairs finding a car mechanic who wants money. D) all of the above are examples.
A) a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired.
Commodity-backed money is: A) a medium of exchange with some intrinsic value. B) equivalent to commodity money. C) a medium of exchange which has alternative economic uses. D) none of the above.
A) a medium of exchange with some intrinsic value.
Which of the following financial assets belongs to M2, but not M1? A) a savings account B) a checkable deposit C) currency D) travelers' checks
A) a savings account
In the liquidity preference model, the money supply is represented by: A) a vertical line. B) an upward sloping curve with a slope of 1/V. C) a horizontal line. D) a downward sloping curve with a slope of 1/k.
A) a vertical line.
In an inflationary gap: A) aggregate output is greater than potential output. B) aggregate output equals potential output. C) aggregate output is less than potential output. D) short run flexibility will bring the economy back to its potential output without any intervention.
A) aggregate output is greater than potential output.
Suppose that the economy is operating at potential output and there is an increase in the money supply. Which of the following best describes the adjustment process that will follow? A) Aggregate output will rise above potential output, nominal wages will rise, and the SRAS will shift leftward. B) Aggregate output will fall below potential output, nominal wages will rise, and the SRAS will shift leftward. C) Aggregate output will rise above potential output, nominal wages will fall, and the SRAS will shift leftward. D) Aggregate output will rise above potential output, nominal wages will rise, and the SRAS will shift rightward.
A) aggregate output will rise above potential output, nominal wages will rise, and the SRAS will shift leftward.
Which of the following will shift the short-run aggregate supply curve to the right? A) an economy-wide decrease in commodity prices B) an increase in nominal wages C) a decrease in productivity D) a decrease in government purchases of goods and services
A) an economy-wide decrease in commodity prices
If the economy is experiencing an inflationary gap, the Fed should conduct ______ monetary policy to _______ aggregate demand. A) contractionary; decrease B) contractionary; increase C) expansionary; decrease D) expansionary; increase
A) contractionary; decrease
If other things are equal, expectations of lower disposable income in the future would ____ and shift the consumption function _____. A) decrease autonomous consumption; down B) increase the marginal propensity to consume; up C) decrease the marginal propensity to consume; down D) increase autonomous consumption; up
A) decrease autonomous consumption; up
Among the liabilities of banks are: A) deposits. B) loans. C) reserves. D) all of the above.
A) deposits.
A recessionary gap will be eliminated because there is ___________ pressure on wages, causing the __________. A) downward; short-run aggregate supply curve to shift rightward. B) downward; short-run aggregate supply curve to shift leftward. C) downward; aggregate demand curve to shift downward. D) upward; aggregate demand curve to shift to the left.
A) downward; short-run aggregate supply curve to shift rightward.
To expand the money supple, the Federal Reserve would have to do which of the following? A) engage in an open purchase of Treasury bills. B) engage in an open sale of Treasury bills. C) raise interest rates. D) print more Federal Reserve notes.
A) engage in an open purchase of Treasury bills
Other things equal, an increase in the interest rate leads to a: A) fall in investment and consumer spending. B) rise in investment and consumer spending. C) fall in investment spending and a rise in consumer spending. D) fall in consumer spending and a rise in investment spending.
A) fall in investment and consumer spending.
The U.S. dollar is defined as: A) fiat money, because it was created by an act of law. B) faith money, because we trust the government to defend its value. C) commodity-backed money, because it is convertible into gold. D) commodity money, because it is widely used to buy commodities.
A) fiat money, because it was created by an act of law.
If Congress places a $5 tax on each ATM transaction, the real demand for money will likely: A) increase. B) decrease. C) increase initially, then decrease. D) be unaffected.
A) increase
Available international evidence for the period of 1970-2000 shows that the: A) increase in the quantity of money leads to a proportionate increase in the aggregate price level. B) relationship between money and the aggregate price level changes over time and across countries. C) concept of monetary neutrality only applies to developing countries. D) All of the above are correct.
A) increase in the quantity of money leads to a proportionate increase in the aggregate price level.
A decrease in energy prices will: A) increase short-run aggregate supply B) decrease the quantity of aggregate output supplied in the short run C) decrease aggregate demand D) increase the quantity of aggregate output demanded
A) increase short-run aggregate supply
As an inflationary gap is eliminated through self-correcting adjustment, the equilibrium price level _____ and the equilibrium real output ________. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases
A) increases; decreases
If it looks like a bank won't meet the Federal Reserve Bank's reserve requirement, normally it will first turn to the: A) other member banks and borrow at the federal funds rate. B) Fed and borrow at the discount rate. C) open market and borrow money there. D) Congress to borrow funds.
A) other member banks and borrow at the federal funds rate.
The short-run aggregate supply curve may shift to the right if: A) productivity increases. B) nominal wages increase. C) personal income taxes decrease. D) commodity prices rise.
A) productivity increases.
If the interest rate is below the equilibrium rate, the: A) supply of non monetary financial assets is great than the demand for them. B) demand for non monetary financial assets is greater than the supply. C) demand and supply of money can still be in balance. D) Supply of money is greater than the demand.
A) supply of non monetary financial assets is great than the demand for them.
The interest rate effect of a change in the aggregate price level occurs: A) when a higher price level decreases the purchasing power of money resulting in an increase in interest rate. B) when the Fed uses contractionary monetary policy causing an increase in interest rate. C) when the government borrowing in the loanable funds market causes interest rate to increase. D) when the price of a bond increases resulting in a fall in the interest rate.
A) when a higher price level decreases the purchasing power of money resulting in an increase in interest rate.
Suppose that the consumption fiction is: C = $500 + 0.8 x YD, where YD is disposable income. If income increases by $2,000, consumption will increase by: A) $400 B) $1,600 C) $500 D) $2,000
B) $1,600
If real GDP is $400, nominal GDP is $480, the price level is 1.2, and the nominal quantity of money is $240, then the velocity of money is: A) 2.4. B) 2. C) 1.67. D) 0.5.
B) 2.
Which of the following is true concerning the monetary base in the United States? A) Currency in circulation is not part of the monetary base. B) Bank reserves are part of the monetary base. C) Most of the monetary base consists of currency in circulation. D) The money multiplier is the ratio of the monetary base to the money multiplier.
B) Bank reserves are part of the monetary base.
Which of the following is the explanation for why the Fed never buys U.S. Treasury bills directly from the federal government? A) It could make the budget deficit worse. B) It could be a route to disastrous inflation. C) It could lead to recession. D) It could reduce the power of the Fed.
B) It could be a route to disastrous inflation.
Suppose that political instability in the Middle East temporarily interrupts the supply of oil to the United States. Which of the following is most likely to occur? A) The short-run aggregate supply curve shifts right, output increases, and prices decrease. B) The short-run aggregate supply curve shifts left, output decreases, and prices increase. C) The aggregate demand curve shifts left, output decreases, and prices decrease. D) The aggregate demand curve shifts right, output increases, and prices increase.
B) The short-run aggregate supply curve shifts left, output decreases, and prices increase.
In the long run, changes in the money supply: A) affect both the aggregate price level and aggregate output. B) affect only the price level but they do not change aggregate output. C) affect aggregate output but not the aggregate price level. D) have no impact on either the aggregate price level or aggregate output.
B) affect only the price level but they do not change aggregate output.
Which of the following will shift the short-run aggregate supply curve to the right? A) a decrease in government purchases of goods and services B) an economy-wide decrease in commodity prices C) an increase in nominal wages D) a decrease in productivity
B) an economy-wide decrease in commodity prices
An increase in the short-run aggregate supply curve may be caused by: A) a decrease in productivity. B) an increase in productivity. C) an increase in the price of inputs. D) an increase in wages.
B) an increase in productivity.
If the Fed conducts an open-market purchase: A) bank reserves decrease and the money supply decreases. B) bank reserves increase and the money supply increases. C) bank reserves decrease and the money supply increases. D) bank reserves increase and the money supply decreases.
B) bank reserves increase and the money supply increases.
After 1873, the United States government: A) stopped redeeming "greenbacks" for gold. B) guaranteed the value of a dollar in terms of gold. C) guaranteed the value of a dollar in terms of gold or silver. D) stopped the use of commodity-backed money.
B) guaranteed the value of a dollar in terms of gold.
If a bank has deposits of $100,000, cash on hand of $10,000 ad $15,000 on deposit at the Federal Reserve, and the required reserve ratio is .20, then the bank: A) has no excess reserves. B) has excess reserves of $5,000 C) has insufficient reserves to meet requirements. D) has an insufficient deposit to loan ratio.
B) has excess reserves of $5,000
If an economy is currently operating at an output level below its potential real GDP, if government wishes use fiscal policy to bring the economy back to its potential real GDP, it will: A) increase the money supply. B) increase government spending. C) increase taxation. D) decrease the money supply.
B) increase government spending.
The velocity of money: A) is another term for the money multiplier. B) is the number of times money turns over within a given time frame. C) refers to how quickly banks make loans. D) is controlled by the FOMC.
B) is the number of times money turns over within a given time frame.
All of the following are responsibilities of the Fed EXCEPT: A) control the monetary base. B) mint bills and coins. C) oversee and regulate the banking system. D) set the discount rate.
B) mint bills and coins.
When a bank deposit is withdrawn and kept as currency, bank reserves decrease and the: A) monetary base decreases. B) monetary base does not change. C) monetary base increases. D) money supply decreases.
B) monetary base does not change.
In the long run, inflationary and recessionary gaps are self-correcting because, eventually: A) nominal wages rise in order to close a recessionary gap and fall in order to close an inflationary gap. B) nominal wages rise in orer to close an inflationary or fall in order to close a recessionary gap. C) the government applies the right combination of fiscal and monetary policies. D) the multiplier compensates the negative supply or demand shocks.
B) nominal wages rise in order to close an inflationary gap and fall in order to close a recessionary gap.
If at the current interest rate the demand for money is $300 billion and the supply of money is $200 billion, then the interest rate will: A) fall B) rise C) remain unchanged D) be in equilibrium
B) rise
If government increases income tax rates, the aggregate demand curve is likely to: A) shift to the right B) shift to the left C) remain constant D) become positively sloped
B) shift to the left
An inflationary gap causes: A) short-run aggregate supply to gradually increase. B) short-run aggregate supply to gradually decrease. C) aggregate demand to gradually increase. D) aggregate demand to gradually decrease.
B) short-run aggregate supply to gradually decrease.
According to the liquidity preference model, the equilibrium interest rate is determined by: A) the supply and demand for funds. B) the supply and demand for money. C) the government. D) the U.N.
B) the supply and demand for money.
Banks don't lend out all of the funds placed in their hands by depositors because: A) it would not be profitable. B) they have to satisfy any depositor who wants to withdraw funds. C) they need to reduce their liquidity position. D) they need to make more money on interest-bearing deposits.
B) they have to satisfy any depositor who wants to withdraw funds.
People forgo interest and hold money: A) because the are required to. B) to reduce their transaction costs. C) there are no substitutes for money. D) because of all of the above.
B) to reduce their transaction costs.
We hold money to: A) earn interest. B) to reduce transaction costs. C) to increase transaction costs. D) do all of the above.
B) to reduce transaction costs.
The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is _____. A) vertical; upsloping B) upsloping; vertical C) downsloping; vertical D) vertical; horizontal
B) upsloping; vertical
The short-run aggregate supply curve is positively sloped because: A) business people suffer from money illusion. B) wages are sticky or don't readily adjust to changes in economic conditions in the short run. C) workers care about nominal wages, not real wages. D) of diminishing returns to labor.
B) wages are sticky or don't readily adjust to changes in economic conditions in the short run.
Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%. If Sam deposits $500 cash into his checking account, the banking system can increase the money supply by: A) $2,500 B) $400 C) $2,000 D) 5,0000
C) $2,000
The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. How much of the deposit is the bank required to keep in reserves? A) $1,000 B) $100 C) $200 D) $800
C) $200
Suppose the banking system does NOT hold excess reserves and the reserve ratio is 25%. If Molly deposits $1,000 of cash into her checking account, the banking system can increase the money supply by: A) $5,000 B) $1,000 C) $3,000 D) $4,000
C) $3,000
The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. How much can the bank loan based on the $1,000 deposit? A) $1,000 B) $200 C) $800 D) $0
C) $800
If the nominal quantity of money demanded is proportional to the aggregate price level, an increase in the price level from 100 to 120, increases the nominal quantity of money demanded from $700 to: A) $800. B) $820 C) $840 D) $920
C) $840
The quantity equation says the velocity of money equals: A) P x Y B) P/(M x Y) C) (P xY)/M D) P x M
C) (P x Y) / M
If a zero-maturity asset has an interest rate of 1% and a government Treasury bill has an interest rate of 2%, the opportunity cost of holding the zero-maturity asset as money is: A) zero. B)0.02%. C) 1%. D) 2%.
C) 1%
Suppose that the nominal quantity of money is $300 billion and velocity is 5. If nominal GDP is $500 billion, the price level is: A) 6. B) 1.33. C) 3. D) 8.3.
C) 3.
Short-term interest rates refer to rates on financial assets due within: A) 24 hours. B) 3 months or less. C) 6 months or less. D) 1 year.
C) 6 months or less.
Which of the following is NOT true about bank runs? A) They may start as a result of a rumor that a bank is in financial trouble. B) May banks' depositors try to withdraw their funds due to fears of bank failure. C) Bank runs typically only happen to small banks with a few financial assets. D) Bank runs often lead to a loss of faith in other banks, causing additional bank runs.
C) Bank runs typically only happen to small banks with only a few financial assets.
Which of the following is NOT considered one of the three chief characteristics of money? A) It serves as a medium of exchange. B) It acts as a store of value. C) It is a highly illiquid asset. D) It is a unit of account.
C) It is a highly illiquid asset.
If there is a sudden increase in commodity prices, this will lead to a shift in the: A) SRAS curve to the right resulting in the higher aggregate output B) AD curve to the right resulting in higher aggregate price levels C) SRAS curve to the left resulting in lower aggregate output D) AD curve to the left resulting in lower aggregate price levels
C) SRAS curve to the left resulting in lower aggregate output
When an economy experiences stagflation, it is usually caused by a: A) a negative demand shock B) a positive supply shock C) a negative supply shock D) a positive demand shock
C) a negative supply shock
A negative demand shock can cause: A) a liquidity trap. B) crowding out. C) a recessionary gap. D) an inflationary gap.
C) a recessionary gap.
Between 1985 and 2004, the Federal Reserve tended to ____ interest rates when the economy had a recessionary gap and ____ interest rates when the economy had an inflationary gap. A) raise; raise B) cut; cut C) cut; raise D) raise; cut
C) cut; raise
A decrease in the supply of money shifts the aggregate: A) supply curve to the left. B) supply curve to the right. C) demand curve to the left. D) demand curve to the right.
C) demand curve to the left.
In the long run, wages and prices are considered to be: A) sticky. B) constant. C) flexible. D) irrelevant.
C) flexible.
According to the wealth effect, when price decreases, the purchasing power of assets: A) decreases and consumer spending increases B) decrease and consumer spending decrease. C) increases and consumer spending increases. D) increases and consumer spending decreases.
C) increases and consumer spending increases.
A natural disaster that destroys part of a country's infrastructure is a type of ______ and therefore shifts the _________ to the ________. A) negative demand shock; aggregate demand curve; right B) negative supply shock; aggregate demand curve; left C) negative supply shock; short-run aggregate supply curve; left D) negative demand shock; long-run aggregate supply curve; left
C) negative supply shock; short-run aggregate supply curve; left
Falling inventories indicate _______ unplanned inventory investment and a _________ economy. A) negative; slowing B) positive; growing C) negative; growing D) positive; slowing
C) negative; growing
The amount of money that people demand is: A) positively related to the interest rate. B) independent the interest rate. C) negatively related to the interest rate. D) positively related or negatively related to the interest rate depending on the state of the economy.
C) negatively related to the interest rate.
Which of the following would an economic policy maker rank as the most preferred type of stock? A) positive demand shock. B) negative demand shock. C) positive supply shock. D) negative supply shock.
C) positive supply shock.
All of the following are examples of bank regulations designed to prevent bank runs EXCEPT: A) reserve requirements. B) deposit insurance. C) the Federal funds rate. D) capital requirements.
C) the Federal funds rate.
If the money supply decreases by 5%, in the long run: A) interest rates rise by 5%. B) the unemployment rate rises by 5%. C) the price level drops by 5%. D) real GDP drops by 5%.
C) the price level drops by 5%.
"Tuition at State University this year is $8,000." Which function on money does this statement best illustrate? A) store of value B) medium of exchange C) unit of account D) means of deferred payment
C) unit of account
Contractionary monetary policy: A) increases aggregate demand. B) increases aggregate supply. C) works by discouraging investment spending. D) does all of the above.
C) works by discouraging investment spending.
The FOMC sets the target interest rate for the next: A) 3 months. B) 6 months. C) 3 weeks. D) 6 weeks.
D) 6 weeks.
If prices are constant, but there is an increase in the value of financial assets: A) aggregate supply shifts to the left. B) aggregate supply shifts to the right. C) aggregate demand shifts to the left. D) aggregate demand shifts to the right.
D) aggregate demand shifts to the right.
Which of the following would NOT fit the economist's definition of money? A) currency B) checkable bank deposits C) coins D) bonds
D) bonds
Which of the following is a component of BOTH the monetary base and the money supply? A) bank reserves at the Fed B) currency in bank vaults C) demand deposits D) currency in circulation
D) currency in circulation
To increase the money supply, the central bank could: A) lower the discount rate. B) make open-market purchases. C) lower reserve requirements. D) do all of the above.
D) do all of the above.
The money demand curve is _______ because a lower interest rate ________. A) upward-sloping; increases the opportunity cost of holding money. B) downward-sloping; increases the opportunity cost of holding money. C) upward-slopping; decreases the opportunity cost of holding money. D) downward-slopping; decreases the opportunity cost of holding money.
D) downward-slopping; decreases the opportunity cost of holding money.
Monetary policy that lowers the interest rate is called _________ because it _________. A) contractionary monetary policy; aims at heading off inflation B) expansionary monetary policy; increases short-run aggregate supply C) contractionary monetary supply; reduces saving and increases consumption D) expansionary monetary policy; increases aggregate demand
D) expansionary monetary policy; increases aggregate demand
A recessionary gap can be closed by _______ wages that shift the ______. A) falling; LRAS curve to the right. B) falling; SRAS curve leftward. C) rising; SRAS curve rightward. D) falling; SRAS curve rightward.
D) falling; SRAS curve rightward
In the short run, a positive demand shock: A) reduces aggregate output and increases the aggregate price level. B) increases aggregate output and reduces the aggregate price level. C) reduces aggregate output and the aggregate price level. D) increases aggregate output and the aggregate price level
D) increases aggregate output and the aggregate price level
In the long run, monetary policy: A) only affects the aggregate price level. B) does not affect aggregate output. C) is neutral. D) is all of the above.
D) is all of the above.
The Federal Reserve Bank of the United States is: A) a purely private central bank. B) a purely public central bank. C) is part of the U.S. government. D) is not exactly a part of the U.S. government, but not really a private institution either.
D) is not exactly part of the U.S. government, but not really a private institution either.
The aggregate demand curve would shift to the left for all of the following reasons EXCEPT: A) a fall in consumers' wealth. B) a decrease in the amount of money in circulation. C) more pessimistic consumer expectations. D) lower labor productivity.
D) lower labor productivity.
A 30% increase in the aggregate price level will: A) increase the real money demand by 30%. B) increase the real money demand by the money multiplier. C) decrease the real money demand by 30%. D) not affect the real demand for money.
D) not affect the real demand for money.
In "The Wealth of Nations" when Adam Smith discussed "a sort of wagon-way through the air," he was referring to: A) the invisible hand B) the forces of competition. C) mass transit systems of the future. D) paper money.
D) paper money.
Rising inventories typically indicate ________ unplanned inventory investment and a ________ economy. A) negative; slowing B) positive; expanding C) negative; expanding D) positive; slowing
D) positive; slowing
If the labor unions lose memberships and become less popular, then: A) production costs will increase, SRAS will shift to the left, decreasing equilibrium GDP and increasing the aggregate price level. B) production costs will fall, there will be a downward movement along SRAS, equilibrium GDP will increase and aggregate price level will fall. C) production costs will not change, AD will shift to the right, increasing equilibrium GDP and aggregate price level. D) production costs will fall, SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level
D) production costs will fall, SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level.
In the long-run if all prices, including the nominal wage, rate doubled, then aggregate output supplied would: A) double B) rise C) fall D) remain unchanged
D) remain unchanged.
According to the loanable funds model, contractionary monetary policy: A) shifts the demand curve for loanable funds to the right. B) shifts the supply curve for loanable funds to the right. C) shifts the demand curve for loanable funds to the left. D) shifts the supply curve for loanable funds to the left.
D) shifts the supply curve for loanable funds to the left.