Econ 202 final

Which of the following events would likely cause the demand for loanable funds (investment) curve to shift to the right?

-Businesses become optimistic about the future of the economy. -Congress passes laws reducing red tape for small businesses.

Which of the following items would likely contribute to the current government budget deficit?

-Involvement in a war -A tax cut -An increase in the rate of unemployment

Suppose a country is in the midst of a serious recession with high unemployment and large government deficits. The president suggests that in times like this the government has the obligation to "tighten its belt" and cut spending since so many families around the country have to do the same thing. In this case, a decrease in government spending will:

-decrease the price level and costs. checked -eventually cause a rightward shift of SRAS. -push AD to the left and decrease output.

Taxpayers are clamoring for their government to be more responsible and many strongly support a balanced-budget amendment. This would mean the country could no longer spend more than it takes in each year. A balanced-budget amendment will:

-force the government to cut back on its spending. - reduce the cost of borrowing. -limit the flexibility of the government in engaging in expansionary fiscal policy.

If a government encourages saving among its citizens, there will be:

-lower interest rates. -investment and economic growth. -a higher level of investment.

Is government debt good or bad for the economy and the nation as a whole? Government debt:

-pushes the burden of the debt onto future generations. -can cause crowding out which increases interest rates. -gives the government the flexibility to respond to economic conditions by changing its spending. -must be repaid, causing government interest payments.

If in some year a nation's budget deficit is $9.52 trillion and government spending is $12.23 trillion, how much must it have earned in tax revenue this year? It must have earned $__________ trillion in tax revenue this year.

2.71

If in some year a nation's budget deficit is $9.49 trillion and government spending is $12.26 trillion, how much must it have earned in tax revenue this year? It must have earned $________ trillion in tax revenue this year.

2.77

After the collapse of the U.S. housing market, what happened to actual GDP compared to potential GDP? a. Actual GDP was less than potential GDP. b. Actual GDP finally equaled potential GDP after years of expansion. c. Actual GDP is unrelated to the U.S. housing market collapse. d. Actual GDP exceeded potential GDP.

a

Assume that the economy is initially in a long equilibrium. There is then an increase in consumption. As a result, real GDP will _______ in the short run, and ________ in the long run a. increase; decrease to its initial value b. decrease; increase to its initial level c. increase; increase further d. decrease; decrease further e. none of the above is correct

a

Assume that the economy is initially in a long run equilibrium. There is then an increase in consumption. As a result, real GDP will ______ in the short run, and _______ in the long run. a. increase; decrease to its initial value b. decrease; increase to its initial value c. increase; increase further d. decrease; decrease further e. none of the above are correct

a

During a recession, government often pursues expansionary fiscal policy. How does this affect budget balances? a. Deficits increase as spending rises and revenues fall. b. Surpluses decrease as spending falls and revenues fall. c. Deficits decrease as spending rises and revenues fall. d. Surpluses increase as spending rises and revenues fall.

a

If the aggregated demand curve shifts to the left in the short run, then the long-run equilibrium will be at a (relative to the original long run equilibrium): a. lower price level and same level of output b. lower price level and lower level of output c. higher price level and higher level of output d. higher price level and lower level of output

a

Refer to Image 1 in Notes Which of the following is FALSE if the economy id at point D? a. unemployment is above its natural rate b. the automatic mechanism will eventually take this economy to point C c. there is an upward pressure on wages and other input prices d. inflation is likely to occur in the near future e. output is above potential output

a

Refer to Image 10 in Notes If the economy is at point !, the appropriate stabilizing monetary policy by the federal reserve would be to: a. raise interest rate b. raise income taxed c. lower income taxes d. lower interest rates e. more than on of the above is correct

a

Refer to Image 11 in Notes Suppose that this economy begins at E1 and the central bank engages in expansionary monetary policy. According to the classical theory of inflation, in the long run, the economy will move to ________ and the price level will be _________. a. E3; P3 b. E1; P2 c. E4; P2 d. E2; P3

a

When the long-run aggregate supply curve shifts, the short-run aggregate supply curve _______ in the ______ direction.

always shifts; same

A government will run a budget surplus when government purchases and transfer payments ___________ tax revenues.

are less than

Consider the mythical economy of "Nelsonville". Suppose that, in 2009, real GDP was $14 trillion and the price level was 150. In 2010, real GDP was $13 trillion and the price level was 160. What must have happened in Nelsonville? (assumes nelsonville is always in a short run equilibrium) a. AD must have decrease b. SRAS must have decreased c. SRAS must have increase d. AD must have increase

b

It is possible for a nation's government to run a budget deficit in some years but not have national debt if the economy initially had a(an): a. contractionary fiscal policy in place. b. surplus at least as large as the deficit. c. expansionary fiscal policy in place. d. surplus smaller than the deficit.

b

Nonprice changes in consumption, investment, government spending, or net exports: a. decrease inflation and increase GDP. b. shift the aggregate demand curve. c. do not affect aggregate demand. d. cause a movement along the aggregate demand curve.

b

Of the government's budget increases, then the ________ curve loanable funds will shift to the ________ and the equilibrium interest rates will _________. a. supply; right; fall b. demand; right; rise c. supply; left; rise demand; left; fall

b

Refer to Image 1 in Notes Suppose the economy is at point A. If there is an unexpected increase in oil prices, then the economy will move to point ______ in the short run, and point _____ in the long run. a. C; A b. B; A c. D; A d. D; C e. B; C

b

Refer to Image 1 in Notes Suppose the economy is at point B. If the federal engages in open market purchases, we should expect to see output _________ services _________, and employment __________ a. increase; decrease; increase b. increase; increase; decrease c. decrease; not change; not change d. not change; increase; not change e. non of the above

b

Refer to Image 1 in Notes Suppose the economy is at point B. Which of the following statements is FALSE? a. there is a recessionary gap b. the automatic mechanism will cause the AD curve to shift to the right c. unemployment is likely above its natural rate d. actual output is less than the potential output e. there is pressure on prices to fall

b

Refer to Image 2 in Notes If the real interest rate is 4%, then the savings is equal to $_______ million, investment is equal to $_______, and the equilibrium quantity of loanable funds is equal to $_______ million a. 90; 120; 120 b. 120; 120; 120 c. 60; 60; 60 d. 120; 60; 120 e. none of the above

b

Refer to Image 2 in Notes The level of savings comes from _______ curve. The level of investment comes form _______ curve. a. the demand; neither b. the supply; the demand c. the demand; the supply d. neither; the supply

b

Refer to Image 1 in Notes Suppose the economy is at point A. If taxes are cut in the economy, where will the eventful long run equilibrium be? a. A b. B c. C d. D

c

Refer to Image 3 in Notes If the table represents all the investments available to the economy and the interest rate is 4.5%, what will be the level of investment in the economy? a. $100 b. $200 c. $300 d. $400 e. $500

c

The aggregate demand curve slopes downwards because: a. as the price of the good rises, people purchase less of the good, assuming the price of all other goods is fixed. b. as the price of the good rises, the inflation rate rises and people purchase less of the good. c. a rise in the price level will reduce the real value of income, causing people to reduce their consumption. d. a rise in the price level will lead to rising inflation and this will reduce consumption spending.

c

When Collins Inc. uses the proceeds from issuing bonds to purchase equipment needed to start a new product line, this is an example of: a. imports. b. saving. c. investment. d. exports.

c

Whenever AD or AS shifts and puts the economy out of long-run equilibrium, AS has a natural tendency to shift in such a way as to bring the economy back into long-run equilibrium. If the economy always eventually comes back to long-run equilibrium, the reason that the government even tries to implement policies to bring the economy into equilibrium is that: a. politicians feel that it will be advantageous to take some action. b. the appropriate government response can eliminate the short-run effect on prices but does little to speed up the process of reducing unemployment. c. the appropriate government response can eliminate the long-run effect on prices and can speed up the process of reducing unemployment. d. businesses expect the government to take some action.

c

Which of the following will not increase LRAS? a. An increase in the capital stock b. An improvement in technology c. An increase in the price level d. An increase in the labor stock

c

in the short run, contractionary monetary policy on the part of the Fed results in: a. a decrease in the money supply, a decrease in interest rates, and a decrease in GDP b. an increase in the money supply, an increase in interest rates, and an increase in GDP c. a decrease in the money supply, an increase in interest rates, and a decrease in GDP d. an increase in the money supply, a decrease in interest rates

c

Which of the following policies/events results in an increase in the equilibrium quantity of loanable funds? a. a decrease in investment spending b. savers feel less uncertainty about the future c. technological progress makes capital more productive d. the economy enters a recession making firms less likely to expand their operations e. more than one of the above

c a decreases DLF b decreases SLF d. decreases DLF

Refer to Image 1 in Notes Suppose the economy is at point B. The automatic mechanism will take the economy to point _________, while the expansionary policy (either monetary or fiscal) will take the economy to point __________. a. A; A b. C; A d. D; C e. A; C

e

Refer to Image 9 in Notes The movement from point A to point B in the money market could be caused by: a. an increase in real GDP b. an open market sale of treasury securities by the federal reserve c. an increase in the required reserve ratio by the federal reserve d. an increase in the price level e. more than on the of above is correct

e a and d could cause this

Refer to Image 5 in Notes As we move from the initial equilibrium to the final equilibrium, which of the following occurs? a. the equilibrium level of saving falls b. the interest rate falls c. the equilibrium level of the investment spending falls d. the interest rate rises e. More than one of the above

e a, c, and d all occur

The government of a closed economy increases taxes and does not change the level of government spending. As a result, public savings will ___________ and private savings will ____________. If the level of consumption spending does not change, then national savings____________. You may assume the level of income (before tax) in the economy does not

increase; decrease; remain unchanged

Temporary policy interventions using increased government spending in response to economic shocks are generally more effective at counteracting _________ shocks than ______________ shocks.

negative demand-side; negatively supply-side

The purpose of contractionary fiscal policy is to _________ ___________, whereas the purpose of expansionary fiscal policy is to _________ ___________

reduce; aggregated demand; increase; aggregated demand

The king of a small monarchy decrees an income tax cut in order to stimulate the economy. However, rather than spend the additional income from the tax cut, the citizens end up saving most of it. This incident __________ Ricardian equivalence theory.

supports

If the citizens of a country want to increase the rate of economic growth, they should focus their efforts on shifting the __________ aggregate supply curve(s) to the ___________.

the long run; right

Anything that causes the cost of production to temporarily decrease will cause the _________ supply curve(s) to __________. Ceteris paribus, this will temporarily ____________ output and ___________ the price level.

the short run; shift right; increase; decrease

If a negative demand-side shock and a temporary negative supply-side shock occur simultaneously, what will be the short-run effects on price level and output? The new level of output _________. The new price level ____________

will be lower; cannot be determined

Saabira earns $78,000 a year and pays an average annual tax rate of 15%. 1. Saabira's disposable income is $_________ and the amount of tax she pays to the government is $________. 2. Suppose a recession hits the economy and Saabira's income falls to $60,000 per year due to the fact that she is earning a smaller annual bonus. If she now pays an average annual tax rate of 12%, her disposable income is $__________ and the amount of tax she pays to the government is $___________ . 3. Saabira's annual salary fell by $_________ and her disposable income fell by $__________. 4. In this example, income taxes ________ an automatic stabilizer.

1. 66,300; 11,700 2. 52,800; 7,200 3. 18,000; 13,500 4. are

Refer to Image 1 in Notes 1. at which point(s) is the output the highest? 2. at which point(s) is unemployment the highest 3. at which point(s) is unemployment equal to its natural rate? 4. at which point(s) is there pressure on wages to rise? 5. at which point(s) is there pressure on wages to fall? 6. at which point(s) is there no pressure on wages to change? 7. at which point(s) is output equal to its long run potential

1. D 2. B 3. A, C 4. D 5. B 6. A, C 7. A, C

Refer to Image 15 in Notes 1. Suppose a summer of perfect weather in the Midwest leads to record harvests of corn, wheat, and soybeans. This will: a. reduce output and lower the price level. b. increase output and lower the price level. c. increase output and raise the price level. d. reduce output and raise the price level. 2. Suppose the government takes no action to help the economy. Eventually, the price level ___________ and output ____________ . 3. If the U.S. government reacts to the record harvests by increasing taxes or decreasing spending, what happens to the price level and output in the long run? In the long run, the price level _________ and output ____________ 4. The problem associated with the government reacting to the record harvests by increasing taxes or decreasing spending is: a. unemployment will increase. b. the deficit will increase. c. the price level will increase. d. the inflation rate will increase.

1. b 2. returns to its initial value; returns to its initial value 3. decreases ; returns to its initial value. 4. a

Refer to Image 14 in Notes 1. Suppose a revolution in Iran results in a significant reduction in the world's supply of oil. This will: a. reduce output and lower the price level. b. increase output and lower the price level. c. increase output and raise the price level. d. reduce output and raise the price level. 2. Suppose the government takes no action to help the economy. Eventually, the price level ___________ and output ____________ . 3. Suppose, instead, the government decides to take action to help the economy because they are worried about a high level of unemployment. You can recommend: a. raising taxes and/or cutting spending. b. raising taxes and/or raising spending. c. cutting taxes and/or cutting spending. d. doing nothing. e. cutting taxes and/or raising spending. 4. If the U.S. government makes the appropriate policy response, what happens to the price level and output in the long run. In the long run, the price level ___________ and output ___________ .

1. d 2. returns to its initial value; returns to its initial value 3. e 4. increases; returns to its initial value

For each of the following shocks, say whether it is a demand-side shock or a supply-side shock. 1. Consumer confidence falls 2. Government spending increases: 3. The price of foreign goods increases 4. The price of oil increases: 5. A cyclone destroys manufacturing plants:

1. demand side shock 2. demand side shock 3. demand side shock 4. supply side shock 5. supply side shock

Indicate whether each of the following is an example of an automatic stabilizer or discretionary fiscal policy. 1. The government increases the top income tax bracket to 35%. 2. The tax rate paid by an individual falls from 20% to 15% when his pay is reduced during a recession. 3. A person qualifies for unemployment compensation when she loses her job during a recession. 4. The government votes to increase military spending. 5. The government collects more tax revenue during an expansion because the stock market is booming.

1. discretionary fiscal policy 2. automatic stabilizer 3. automatic stabilizer 4. discretionary fiscal policy 5. automatic stabilizer

Assuming that unemployment is high and spending is low, answer the following questions. 1. Should the government pursue expansionary or contractionary fiscal policy? ____________ fiscal policy 2. What will the appropriate policy do to the aggregate demand curve? Will it shift to the right or to the left? 3. Through which component(s) of aggregate demand (Consumption, Investment, Government Spending, or Net Exports) will the change occur?

1. expansionary 2. to the right 3. consumption, government spending, investment

Time lags can impede the effectiveness of fiscal policy. Select the source of the time lag for each of the following situations. 1. The parliament in a European country passes a massive infrastructure development appropriation to stimulate the economy. However, the engineering firms in the country become backlogged with the extra work. 2. Congress passes a tax cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases over tax cuts. 3. In September, the Bureau of Labor Statistics revises the unemployment numbers from July. 4. Congress passes a fiscal policy bill that sends block grants to states for economic development. However, some of the state legislatures cannot agree on how to allocate the money, so the funds sit idle in a special account.

1. implementation lag 2. formulation lag 3. information lag 4. formulation lag

How will each of the following affect aggregated demand? ("increase AD", "decrease AD", or "movement along AD" 1. an increase in wealth in the economy 2. a decrease in the price level 3. an increase in taxes 4. an increase in imports 5. a decrease in consumer confidence 6. an appreciation of the domestic currency 7. a decrease in foreign incomes 8. an increase in domestic incomes 9. a decrease in interest rates 10. increase in expected future outcomes 11. increase in business taxes 12. decrease in government purchases

1. increase C -> increase AD 2. movement along AD 3. decrease C -> decrease AD 4. decrees NX -> decrease AD 5. decrease C -> decrease AD 6. decrease NX -> decrease AD 7. decrease NX -> decrease AD 8. increase C, decrease NX -> probably increase AD 9. increase C, increase I -> increase Add 10. increase C -> increase AD 11. increase I -> increase AD 12. decrease G -> decrease AD

What are the four components of GDP?

Investment Government spending Consumption Net exports

Refer to Image 8 in Notes Consider the movement from point A to point B in the money market. Which of the following is TRUE? a. if the Fed is effectively employing stabilization policy in this graph, then it must have believed that there was an inflationary gap in the macro economy b. a possible cause of this is change from A to B is a decrease in the required reserve ration c. this movement shows that people wish to hold on to more money as the interest rates rise d. a possible cause of this change from A to b is open market purchases by the Fed e. more than one of the above is correct

a

The demand curve for an individual good slopes downwards because: a. as the price of the good rises, people purchase less of the good, assuming the price of all other goods is fixed. b. as the price of the good rises, the inflation rate rises and people purchase less of the good. c. a rise in the price level will reduce the real value of income, causing people to reduce their consumption. d. a rise in the price level will lead to rising inflation and this will reduce consumption spending.

a

according to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be: a. 4% b. 6% c. 8% d. 6/2% or 3% e. 2%

a

if households in the economy decide to take money out of checking accounts deposits and put this money into savings accounts this will: a. decrease M1 and not change M2 b. decrease M1 and increase M2 c. increase M1 and decrease M2 d. decrease M1 and decrease M2

a

if the Fed raises the interest rate, this will ________ prices and _________ real GDP in the short run. a. reduce; lower b. increase; lower c. increase; raise d. reduce; raise

a

in a closed economy, national savings will be: a. lower than the private savings if the government runs a deficit b. higher than the private savings if the government runs a deficit c. equal than the private savings if the government runs a deficit d. lower than the private savings if the government runs a surplus

a

sticky wages reduce the ability of free market forces to help the economy recover from a recession. Which of the following inflation rates would make real wages less sticky, ad thus allow for a quicker adjustment? a. 2% b. 0% c. -2%

a

unexpectedly high inflation causes which of the following? a. lenders receive a lower real interest rate than they expected b. borrowers pay a higher real interest rate than they expected c. neither borrowers nor lenders lose d. both lenders and borrowers gain e. more than one of the above is correct

a

If the government changed the tax code in a way that simultaneously increase the profitability of investment spending and reduced the incentive to save, then which of the following will happen with certainty? a. increase in the real interest rate b. decrease in the equilibrium quantity of savings c. decrease in the equilibrium quantity of loanable funds d. increase in the equilibrium quantity loanable funds e. more than one of the above will happen with certainty

a b, c, d, are all possible but not certain

Refer to Image 7 in Notes Assume that a bank's initial balance is in the table, and that the reserve ration is 10%. If someone deposits $100,000 into this bank, it will: a. have $120,000 in excess reserves b. be in a position to make a maximum of $100,000 of new loans c. be in a position to make a maximum of $200,000 of new loans d. have required reserves of $50,000 e. more than one of the above is correct

a d would have to be 30,000 to be correct

Suppose the economy is at a short run equilibrium GDP that lies beyond potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP? a. prices will increase b. short-run aggregated supply will shift to the right c. unemployment will decrease d. wages will decrease e. more than one of the above is correct

a would need to be: b. left c. increase d. increase

In 2009, during the height of the U.S. financial crisis, real GDP fell 3.5 percent and the Consumer Price Index fell from 215.3 to 214.9. Was this recession likely caused by a shift in aggregate demand or aggregate supply? This recession was likely caused by _____________

a decrease in aggregate demand

When compared to financial investments in debt-based assets (e.g., bonds), financial investments in equity-based assets (e.g., stocks) usually pay _________ rate of return because debt assets typically carry________ level of risk.

a higher; a lower

A major corporation would likely pay _________ interest rate on a loan than would an individual borrower because the individual likely has a __________ risk of default than the corporation.

a lower; a higher

If Daisy buys some of the Collins Inc. bonds, her purchase is an example of: a. exports. b. imports. c. saving. d. investment.

c

Refer to Image 2 in Notes The loanable funds market is initially in equilibrium, as shown in the figure. An increasing in business confidence about the future could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium? a. the real interest rate is 3% and the quantity of loanable funds is $90 million b. the real interest rate is 5% and the quantity of loanable funds is $150 million c. the real interest rate is 5% and the quantity of loanable funds is $90 million d. the real interest rate is 3% and the quantity of loanable funds is $150 million

b

Refer to Image 2 in Notes The loanable funds market is initially in equilibrium,. Suppose that there is a cultural change in society and people begin to be more frugal than before and this increase their desire to save money. The _________ loanable funds will __________, thereby __________ the equilibrium interest rate and ___________ the equilibrium quantity of loanable funds a. demand for; fall; decreasing; increasing b. supply of; rise; decreasing; increasing c. demand for; rise; increasing; increasing d.supply of; fall; increasing; decreasing

b

Refer to Image 3 in Notes If the table represents all the investments available to the economy and the interest rate is 5.5%, what will be the level of investment in the economy? a. $100 b. $200 c. $300 d. $400 e. $500

b

Suppose that today the actual Federal Funds Rate is 0.40% and the Federal Reserves Bank's target for the Federal Funds Rate is 0.25%. What is the Federal Reserve Bank likely to do? a. engage in open market sales, which will increase the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate b. engage in open market purchases, which will increase the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate c. engage in open market purchases, which will decrease the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate d. engage in open market sales, which will decrease the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate e. none of the above -- since the Federal Funds Rate is directly set by the Federal Reserve, it will simply lower the rate

b

Suppose the economy is in long run equilibrium. If there is an increase in the nation's capital stock as well as an increase in optimism about future business conditions, then we would expect that in the short run, real GDP: a. will fall and the price level might rise, fall, or stay the same b. will rise and the price level might rise, fall or stay the same c. may rise, fall or stay the same and the price level will rise d. may rise, fall or stay the same and the price level will fall

b

The savings-investment identity tells us: a. savings always equals investment in an economy with government and trade. b. savings always equals investment in an economy without government or trade. -personal savings always equals foreign investment in an economy without government. -foreign savings always equals foreign investment in an economy with trade.

b

Which of the following is an appropriate policy for the federal reserve to pursue if it wants to increase money supply? a. raise the discount rate b. buy u.s. treasury bonds c. lower taxes d. raise the reserve requirement e. more than one of the above answers is correct

b

Which of the following would you expect to decrease the equilibrium interest rate? a. there is an increase in social assistance programs from the government that provide payments to the elderly b. a decrease in the profitability of investment projects firms are considering c. an increase in the budget deficit d. a decrease in the percentage if income that households save e. more than one of the above is correct

b a decreases SLF c increases DLF d decreases SLF

Refer to Image 4 in Notes Which of the following is consistent with the changes depicted in the graph? a. new government tax policy increases the profitability of new investment spending b. a recession decreases the profitability of new investment spending c. an economic expansion increases the profitability of new investment spending d. the wealth of savers risk e. more than one of the above is correct

b graph depicts DLF decreasing a increases DLF c increases DLF d increases SLF

Comparing a government bond from a developing country to one from France, the government bond from the developing country will have: a. less risk, because the chance of default is higher in a nation with higher GDP and growth. b. less risk, because the chance of default is higher in a nation with lower GDP and growth. c. more risk, because the chance of default is higher in a nation with lower GDP and growth. d. more risk, because the chance of default is lower in a nation with lower GDP and growth.

c

Consider the following two events Event 1. Because interest rates fall from 5% to 4%, the local bakery decides to borrow more money and buy a new oven. Event 2. Because a local bike shop os optimistic about the future of the economy, the shop decides to borrow money and build a new store. In the loanable funds market, Event 1 is __________ and Event 2 is _____________ a. a shift of the demand for loanable funds curve; a shift of the supply of loanable funds curve b. a shift of the demand for loanable funds curve; a movement along the demand of loanable funds curve c. a movement along the demand of loanable funds curve; a shift of the demand for loanable funds curve d. a movement along the supply of loanable funds curve; a shift of the supply of loanable funds curve

c

Consider a technological advance which makes capital more productive. In the loanable funds framework, this will lead to an increase in the equilibrium quantity of savings. Which of the following best explains this increase? a. the supply of loanable funds shifts to the right, causing an increase in savings b. the supply of loanable funds shifts to the left, causing an increase in savings c. the demand for loanable funds shifts to the left, putting upward pressure on the real interest rate. This higher real interest rate causes the quantity of the loanable funds supplied to increase d. the demand for loanable funds shifts to the right, putting upward pressure on the real interest rate. This higher real interest rate causes the quantity of the loanable funds supplied to increase e. none of the above. this is a trick question. the equilibrium quantity of loanable funds increases, but not the equilibrium quantity of savings does not

d

If unemployment is high and spending is sluggish, what type of fiscal policy should be enacted? a.Expansionary fiscal policy, which includes decreases in government spending or increases in taxes, which will shift AD to the right b. Contractionary fiscal policy, which includes decreases in government spending or increases in taxes, which will shift AD to the left c. Contractionary fiscal policy, which includes increases in government spending or decreases in taxes, which will shift AD to the right d. Expansionary fiscal policy, which includes increases in government spending or decreases in taxes, which will shift AD to the right

d

Mary has $1,000 and is considering purchasing a $1,000 bond that pays 7% interest per year. Mary decides not to buy the bond and holds the $1,000 as cash. If the inflation rate is 4%, the opportunity cost of holding the $1,000 as money is: a. $30.00 b. $110.00 c. $40.00 d. $70.00

d

Refer to Image 1 in Notes Suppose the economy is at point A. If there is an increase in consumer confidence, then the economy will move to point ______ in the short run, and point _____ in the long run. a. C; A b. B; A c. B; C d. D; C e. D; A

d

Refer to Image 6 in Notes Suppose a transaction changes a banks balance sheet as indicated in the following t-account, and the reserve ration is 10%. As a result of the transaction, the bank can make a maximum loan of a. $0 b. $1,980 c. $2,000 d. $1,800 e. $200

d

Suppose you deposit $2,000 into Bank of America and that the reserve ratio is 10%. How does this affect the bank's balance sheet? a. required reserves rise by $2,000 b. deposits rise by $1,000 c. reserves rise by $200 d. excess reserves rise by $1,800 e more than one of the above is correct

d

The best fiscal policy for a country suffering from high inflation is: a. contractionary fiscal policy, which includes decreasing taxes or increasing spending. b. expansionary fiscal policy, which includes increasing taxes or decreasing spending. c. expansionary fiscal policy, which includes decreasing taxes or increasing spending. d. contractionary fiscal policy, which includes increasing taxes or decreasing spending.

d

What is the relationship between the deficit and public debt? a. Deficit is the ratio of debt to surplus. b. Debt is the product of GDP and transfer payments. c. Deficit is the sum of all debt and surpluses. d. Debt is the sum of all deficits and surpluses.

d

Which of the following statements is true? a. The government has a harder time counteracting leftward shifts in AD than in AS because shifts in AD both raise prices and reduce output. b. The government has a harder time counteracting leftward shifts in AS than in AD because shifts in AS raise prices and output. c. The government has a harder time counteracting leftward shifts in AD than in AS because shifts in AD raise prices and output. d. The government has a harder time counteracting leftward shifts in AS than in AD because shifts in AS both raise prices and reduce output.

d

if the reserve ration is 10%, and the banks do not hold excess reserves, when the Fed buys $10 million dollars of bonds form the public, bank reserves a. increase initially by $1 million and the money supply eventually increases by $10 million b. decrease initially by $10 million and the money supply eventually decreases by $100 million c. decreases initially by $1 million and the money supply eventually increases by $10 million d. increases initially by $10 million and the money supply eventually increases by $100 million

d

which of the following is likely to occur if there is 10% inflation over the next year and it is perfectly anticipated? a. there will not be any "menu lists" b. real interest rates will increase by 10% c. wealth will be redistributed from the lenders to borrowers d. nominal wages will increase by 10% e. more than one of the above is correct

d

with a reserve ratio of 20%, an increase in the reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of a. $8,000 b. $2,000 c. $20,000 d. $50,000 e. $100,000

d

you borrow $10,000 form a bank for 1 year at nominal interest rate of 5%. The CPI over that year rises from 150 to 155. What is the approximate real interest rate you are paying? a. -10% b. 0% c. 10% d. 1.67% e. -3.3%

d

In a closed economy, if government spending increases while private savings and taxes remain constant, then investment spending must _________

decrease

Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will __________ exports from the U.S. to Sweden, __________ imports from Sweden to the U.S. and ___________ U.S. aggregate demand.

decrease; increase; decrease

In the long run, changes in price ____________ aggregate supply. As a result, the long-run aggregate supply curve is _________/

don't affect; vertical

Refer to Image 1 in Notes Suppose the economy is at point B. The automatic mechanism will take the economy to point ______, while expansionary policy (either monetary or fiscal) will take the economy to point _________. a. A; A b. C; A c. C; C d. D; C e. A; C

e