Macroeconomics Final
12. If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $20 million worth of government bonds, bank reserves a. decrease by $20 million and the money supply eventually decreases by $400 million. b. increase by $20 million and the money supply eventually increases by $400 million. c. decrease by $20 million and the money supply eventually decreases by $100 million. d. increase by $20 million and the money supply eventually increases by $100 million.
A
15. If M = 5,000, P = 5.5, and Y = 9,000, what is velocity? a. 10 b. 2 c. 2.75 d. 0.55
A
18. 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
2. 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
22. 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
30. The short-run Phillips curve shows the combinations of a. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short- run aggregate supply curve. b. unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. c. real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. d. real GDP and the price level that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.
A
31. According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they a. decreased the money supply. b. increased government expenditures. c. decreased taxes. d. increased the money supply.
A
32. The economy will move to a point on the short-run Phillips curve where unemployment is higher if a. the inflation rate decreases. b. the government increases its expenditures. c. the Fed increases the money supply. d. the government decreases taxes.
A
36. If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any inflation rate unemployment is higher in the short run than before. b. left, so that at any inflation rate unemployment is higher in the short run than before. c. right, so that at any inflation rate unemployment is lower in the short run than before. d. left, so that at any inflation rate unemployment is lower in the short run than before.
A
41. Which of the following decreases inflation and increases unemployment in the short run?a. Either a decrease in government expenditures by itself or a decrease in the money supply growth rate by itself. b. A decrease in government expenditures, but not a decrease in the money supply growth rate. c. A decrease in the money supply growth rate, but not a decrease in government expenditures. d. Neither a decrease in government expenditures nor a decrease in the money supply.
A
44. Which of the following are vertical? a. Both the long-run Phillips curve and the long-run aggregate supply curve b. Neither the long-run Phillips curve nor the long-run aggregate supply curve c. The long-run Phillips curve, but not the long-run aggregate supply curve d. The long-run Phillips curve, but not the long-run aggregate supply curve
A
47. If the multiplier is 3, then the MPC is a. 1/3. b. 3/4. c. 4/3. d. 2/3.
A
48. If the Fed conducts open-market sales, the money supply a. decreases and aggregate demand shifts left. b. decreases and aggregate demand shifts right. c. increases and aggregate demand shifts left. d. increases and aggregate demand shifts right.
A
51. In the short run, open-market purchases a. increase investment and real GDP, and decrease interest rates. b. increase real GDP and interest rates, and decrease investment. c. increase investment and interest rates, and decrease real GDP. d. decrease investment, interest rates, and real GDP.
A
56. If policymakers decrease aggregate demand, then in the short run the price level a. falls and unemployment rises. b. and unemployment fall. c. and unemployment rise. d. rises and unemployment falls.
A
57. If the government raises government expenditures, then in the short run, prices a. rise and unemployment falls. b. fall and unemployment rises. c. and unemployment rise. d. and unemployment fall.
A
59. A basis for the slope of the short-run Phillips curve is that when unemployment is high there are a. downward pressures on prices and wages. b. downward pressures on prices and upward pressures on wages. c. upward pressures on prices and downward pressures on wages. d. upward pressures on prices and wages.
A
62. The Federal Open Market Committee is a. the group at the Federal Reserve that sets monetary policy. b. in charge of tax collection. c. the group that sets the amount of government spending. d. the group that reviews income assistance programs.
A
67. Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have available to lend out if it decides to hold only required reserves? a. $27,000 b. $27,190 c. $26,190 d. $9,000
A
7. When the Consumer Price Index decreases from 140 to 125 a. less money is needed to buy the same amount of goods, so the value of money rises. b. more money is needed to buy the same amount of goods, so the value of money rises. c. less money is needed to buy the same amount of goods, so the value of money falls. d. more money is needed to buy the same amount of goods, so the value of money falls.
A
70. While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, " a more precise account of the Fed's action would be as follows: "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent. " "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount. " "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent. " "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent. "
A
10. According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also either a a. rise in output or a rise in velocity. b. rise in output or a fall in velocity. c. fall in output or a rise in velocity. d. fall in output or a fall in velocity.
B
13. Which of the following functions as both a store of value and a medium of exchange? a. Cash and stocks b. Cash but not stocks c. Stocks but not cash d. Neither cash nor stocks
B
17. 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
20. 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
24. The classical dichotomy and monetary neutrality are represented graphically by a. an upward-sloping long-run aggregate-supply curve. b. a vertical long-run aggregate-supply curve. c. an upward-sloping short-run aggregate-curve. d. a downward-sloping aggregate-demand curve.
B
26. An increase in the expected price level shifts a. both the short-run and long-run aggregate supply curves to the left. b. the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve. c. the long-run aggregate supply curve to the left but does not affect the short-run aggregate supply curve. d. neither the long-run aggregate supply curve nor the short-run aggregate supply curve to the left.
B
28. A goal of monetary policy and fiscal policy is to a. offset the shifts in aggregate demand and thereby eliminate unemployment. b. offset shifts in aggregate demand and thereby stabilize the economy. c. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. d. enhance the shifts in aggregate demand and thereby increase economic growth.
B
3. In the long run, money demand and money supply determine a. the value of money and the real interest rate. b. the value of money but not the real interest rate. c. the real interest rate but not the value of money. d. neither the value of money nor the real interest rate.
B
35. Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in a. both the short and long run. b. the short run, but not the long run. c. the long run, but not the short run. d. neither the short nor the long run.
B
38. If policymakers expand aggregate demand, then in the long run a. prices will be higher and unemployment will be lower. b. prices will be higher and unemployment will be unchanged. c. prices and unemployment will be unchanged. d. prices will be lower and unemployment will be higher.
B
39. Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve? a. Teresa reads in the newspaper that the central bank recently raised the money supply. b. Jackie gets fewer job offers. c. Miguel makes larger increases in the prices at his health food store. d. Julie's nominal wage increase is larger.
B
4. 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
40. The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead a. to a lower unemployment rate and a lower inflation rate than policy B. b. to a lower unemployment rate and a higher inflation rate than policy B. c. to a higher unemployment rate and lower inflation rate than policy B. d. to a higher unemployment rate and higher inflation rate than policy B.
B
43. How would a increase in the natural rate of unemployment affect the long-run Phillips curve? a. It would shift the long-run Phillips curve left.b. It would shift the long-run Phillips curve right.c. There would be an upward movement along a given long-run Phillips curve. d. There would be a downward movement along a given long-run Philips curve.
B
45. If the Federal Reserve decreases the growth rate of the money supply, in the long run a. inflation is lower and the unemployment rate is higher. b. inflation is lower while the unemployment rate is unchanged. c. inflation is unchanged while the unemployment rate is higher. d. inflation is higher and the unemployment rate is lower.
B
50. Liquidity preference theory is most relevant to the a. short run and supposes that the price level adjusts to bring money supply and money demand into balance. b. short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c. long run and supposes that the price level adjusts to bring money supply and money demand into balance. d. long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
B
53. Fiscal policy refers to the idea that aggregate demand is affected by changes in a. the money supply. b. government spending and taxes. c. trade policy. d. interest rates.
B
58. If the central bank decreases the money supply, in the short run, output a. falls so unemployment falls b. falls so unemployment rises. c. rises so unemployment falls. d. rises so unemployment rises.
B
66. 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
9. You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______. a. store of value, medium of exchange, unit of account b. store of value, unit of account, medium of exchange c. medium of exchange, unit of account, store of value d. medium of exchange, store of value, unit of account
B
1. The principle of monetary neutrality implies that an increase in the money supply will increase a. real GDP and the price level. b. real GDP, but not the price level. c. the price level, but not real GDP. d. neither the price level nor real GDP.
C
16. A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply? a. $50 b. $100 c. $150 d. $200
C
21. 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
25. 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
27. Shifts in aggregate demand affect the price level in a. the short run but not in the long run. b. the long run but not in the short run. c. both the short and long run. d. neither the short nor long run.
C
29. If the stock market crashes, then a. aggregate demand decreases, which the Fed could offset by selling bonds. b. aggregate supply decreases, which the Fed could offset by purchasing bonds. c. aggregate demand decreases, which the Fed could offset by purchasing bonds. d. aggregate supply decreases, which the Fed could offset by selling bonds.
C
33. If taxes fall, then aggregate demand shifts a. left, making unemployment lower than otherwise. b. left, making unemployment higher than otherwise. c. right, making unemployment lower than otherwise. d. right, making unemployment higher than otherwise.
C
42. A vertical long-run Phillips curve is consistent witha. the conclusion of Friedman and Phelps, but it is not consistent with the classical idea of monetary neutrality. b. the classical idea of monetary neutrality, but it is not consistent with the conclusion of Friedman and Phelps. c. both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality.d. neither the conclusion of Friedman and Phelps nor the classical idea of monetary neutrality.
C
46. If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower a. in the long run and the short run. b. in the long run but not in the short run. c. in the short run but not in the long run. d. in neither the short run nor the long run.
C
49. If the Fed increases the money supply, a. the interest rate increases, which tends to raise stock prices. b. the interest rate increases, which tends to reduce stock prices. c. the interest rate decreases, which tends to raise stock prices. d. the interest rate decreases, which tends to reduce stock prices.
C
5. If Y and V are constant and M doubles, the quantity equation implies that the price level a. more than doubles. b. changes but less than doubles. c. doubles. d. does not change.
C
54. The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it a. reduces investment and thereby increases consumer spending. b. increases the money supply and thereby reduces interest rates. c. increases income and thereby increases consumer spending. d. decreases income and thereby increases consumer spending.
C
55. Which of the following events shifts aggregate demand rightward? a. An increase in government expenditures or a decrease in the price level b. A decrease in government expenditures or an increase in the price level c. An increase in government expenditures, but not a change in the price level d. A decrease in the price level, but not a change in government expenditures
C
6. 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.
C
60. The short-run relationship between inflation and unemployment is often called a. the Classical Dichotomy. b. Money Neutrality. c. the Phillips curve. d. the Aggregate Supply and Demand model.
C
61. Fiscal policy affects the economy a. only in the short run. b. only in the long run. c. in both the short and long run. d. in neither the short nor the long run.
C
65. Which of the following is an example of barter? a. A parent gives a teenager a $10 bill in exchange for her babysitting services. b. A homeowner gives an exterminator a check for $50 in exchange for extermination services. c. A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. d. A doctor performs surgery on a patient whose insurance pays 100% of the bill.
C
68. The federal funds rate is the a. percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. b. percentage of deposits that banks must hold as reserves. c. interest rate at which the Federal Reserve makes short-term loans to banks. d. interest rate at which banks lend reserves to each other overnight.
C
69. If the federal funds 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
8. Which of the following does the Federal Reserve not do? a. Conduct monetary policy b. Act as a lender of last resort c. Conduct fiscal policy d. Serve as a bank regulator
C
11. Which of the following is included in both M1 and M2? a. Traveler's checks, demand deposits, and savings deposits b. Currency and money market mutual funds c. Currency, demand deposits, and savings deposits d. Currency, demand deposits, and other checkable deposits
D
14. According to the classical dichotomy, which of the following increases when the money supply increases? a. The real interest rate b. The real GDP c. The real wage d. The nominal wage
D
19. 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
23. 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
34. According to the Phillips curve, unemployment and inflation are positively related in a. the short run and in the long run. b. the short run, but not in the long run. c. the long run, but not in the short run. d. neither the long run nor the short run.
D
37. In the long run, policy that changes aggregate demand changes a. both unemployment and the price level b. neither unemployment nor the price level. c. only unemployment. d. only the price level.
D
52. Which of the following shifts aggregate demand to the left? a. An increase in the price level b. An increase in the money supply c. A decrease in the price level d. A decrease in the money supply
D
63. Recessions come at a. regular intervals. During recessions consumption spending falls relatively more than investment spending. b. regular intervals. During recessions investment spending falls relatively more than consumption spending. c. irregular intervals. During recessions consumption spending falls relatively more than investment spending. d. irregular intervals. During recessions investment spending falls relatively more than consumption spending.
D
64. Which of the following is not a function of money? a. Unit of account b. Store of value c. Medium of exchange d. Protection against inflation
D
