ECON 1301 Final Exam

Most economists believe that fiscal policy is A. not as good as monetary policy for month-to-month stabilization. B. not very good at pushing the economy in a particular direction. C. better than monetary policy for "fine-tuning" the economy. D. potential positive and negative effects on short-run business indebtedness.

A. not as good as monetary policy for month-to-month stabilization.

Use the following graphs to answer the next question. In the diagrams, AD1 and AS1 are the "before" curves. Assuming Q1 is full-employment output, inflation is depicted by A. panel (C) only. B. Panel (A) only. C. panel (B) only. D. panels (A) and (B).

A. panel (C) only.

Changes in which of the following would shift the aggregate supply curve? A. productivity B. real interest rates C. income tax rates D. foreign-exchange rates

A. productivity

The labels for the axes of an aggregate supply curve should be A. real domestic output for the horizontal axis and price level on the vertical axis. B. aggregate demand for the vertical axis and real national output for the horizontal axis. C. real employment for the vertical axis and price level for the horizontal axis. D. real domestic output for the horizontal axis and aggregate supply for the horizontal axis.

A. real domestic output for the horizontal axis and price level on the vertical axis.

In an economy, the government wants to decrease aggregate demand by $150 billion at each price level to decrease real GDP and reduce inflation. If the MPS is 0.2, then it could decrease government spending by A. $20 billion. B. $40 billion. C. $40.50 billion D. $$30 billion

D. 30 billion $150 X 0.2 = $30

Use the following graph to answer the next question. What combination would most likely cause a shift from AD2 to AD1? A. An increase in taxes and an increase in government spending. B. A decrease in taxes and a decrease in government spending. C. A decrease in taxes and an increase in government spending. D. An increase in taxes and a decrease in government spending.

D. An increase in taxes and a decrease in government spending.

The major problem facing the economy if high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which changes by the Fed would reinforce each other to achieve that objective? A. Selling government securities and raising the discount rate. B. Buying government securities and raising the reserve ratio. C. Selling government securities and lowering the discount rate. D. Buying government securities and lowering the discount rate.

D. Buying government securities and lowering the discount rate.

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion, (2) investment = $50 billion, (3) government purchases = $100 billion, and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $700 billion, then what combination of actions would be most consistent with the GDP-gap here? A. Decrease government spending and raise taxes. B. Decrease government spending and lower taxes. C. Increase government spending and taxes. D. Increase government spending and reduce taxes.

D. Increase government spending and reduce taxes.

An increase in input productivity will A. decrease the equilibrium real output. B. reduce aggregate demand. C. shift the aggregate supply curve leftward. D. decrease the equilibrium price level, because the supply curve shifts rightward.

D. decrease the equilibrium price level, because the supply curve shifts rightward.

Deflation refers to a situation where A. the rate of inflation rises, and could be caused by a decrease in aggregate demand. B. the rate of inflation falls, and could be caused by an increase in net exports. C. price levels falls, and could be caused by a decrease in aggregate supply. D. price levels falls, and could be caused by a shift of AD to the left.

D. price levels falls, and could be caused by a shift of AD to the left.

If at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general A. shortage and the price level will rise. B. shortage and the price level will fall. C. surplus and the the price level will rise. D. surplus and the price level will fall.

D. surplus and the price level will fall.

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier? A. the discount rate B. open-market operations C. the federal funds rate D. the reserve ratio

D. the reserve ratio

Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,100 and, at the price level of 100, current aggregate demand is $1,250. If the government moves the economy back to the full-employment level of output by reducing government expenditures by $50, then the expenditures multiplier equals A. 4. B. 5. C. 2. D. 10.

B. 5.

Which of the following best describes the cause-and-effect chain of contractionary monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.

Use the following graph to answer the next question. If current output Q1 and full-employment output is Q3, the in the long run the short aggregate supply schedule is A. AS1. B. AS3. C. AD. D. AS2.

B. AS3.

With cost-push inflation in the short run, there will be a(n) A. increase in employment B. a decrease in real GDP. C. rightward shift in the aggregate demand curve. D. an increase in real GDP.

B. a decrease in real GDP.

Which of the following effects best explains the downward slope of the aggregate demand curve? A. an expectation effect B. an interest-rate effect C. a substitution effect D. a multiplier-effect

B. an interest-rate effect

If the dollar depreciates in value relative to foreign currencies, aggregate demand A. increased because C increases. B. increases because net exports increases. C. increases because net exports decreases. D. decreases because C decreases.

B. increases because net exports increases.

There is general agreement among economists that a proposed fiscal policy should be evaluated for its A. contribution to the growth of exports and imports in the economy. B. potential positive and negative effects on long-run productivity and growth. C. contribution to the purpose of "fine-tuning" the economy. D. potential positive and negative effects on short-run business indebtedness.

B. potential positive and negative effects on long-run productivity and growth.

If the Fed sells government securities to the general public in the open market, the A. the public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will decrease their reserves at the Fed. B. Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed. C. Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed. D. the public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will increase their reserves at the Fed.

C. Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed.

Which of the following will decrease commercial bank reserves? A. A decrease in the discount rate. B. A decrease in the reserve ratio. C. The sell of government bonds in the open market by the Federal Reserve Banks. D. The purchase of government bonds in the open market by the Federal Reserve Banks.

C. The sell of government bonds in the open market by the Federal Reserve Banks.

Which would be considered to be one of the factors that shift the aggregate demand curve in the short run? A change in A. resources. B. productivity. C. consumer spending. D. technology.

C. consumer spending.

In an effort to decrease economic growth, the government could increase taxes, thus effectively decreasing households' disposable income. We could expect this to A. affect neither aggregate supply nor aggregate demand. B. increase aggregate demand. C. decrease aggregate demand. D. reduce aggregate supply.

C. decrease aggregate demand.

The real-balances effect on aggregate demand suggests that a A. lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending. B. higher price level will increase the real value of many financial assets and therefore cause an increase in spending. C. lower price level will increase the real value of many financial assets and therefore cause an increase in spending. D. lower price level will decrease the real value of many financial assets and therefore cause an increase in spending.

C. lower price level will increase the real value of many financial assets and therefore cause an increase in spending.

One timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the A. time fiscal action is taken and the time that the action has its effect on the economy. B. start of a predicted recession and the actual start of the recession. C. time the need for the fiscal action is recognized and the time that the action is taken. D. start of the recession and the time it takes to recognize that the recession has started.

C. time the need for the fiscal action is recognized and the time that the action is taken.