Econ Final

If the required reserve ratio is 10%, actual reserves are $10 million, and currency in circulation is equal to $20 million M will at the most be equal to

$120 million

Assume that the MPC out of disposable income is .8 and that the government taxes all income at a constant rate of 30%. If gross income increases by $100, consumption will initially increase by

$56

Dissaving occurs when disposable income is

$620

The Marginal Propensity to Save for this economy is

.2

If the MPC is .75., then a $100 increase in investment will result in a maximum increase in eq rGDP of

400

Which of the following will cause an increase in aggregate demand

A decrease in income taxes

Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates

A decrease in taxes and an open-market purchase of government securities by the central bank (b/c fiscal and monetary affect interest rates in opposite directions so cancel out

The graph above shows 2 aggregate demand curves AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by (AD2 is to the left of AD1)

A decrease in the Money Supply

Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market

A depreciation of Country A's currency

Frictional unemployment occurs when which of the following happens?

A worker voluntarily quits their job to search for a better one

If the value of the US dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run

AD will decrease

If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full employment level?

An increase in government spending

Which of the following will most likely cause an increase in real output in the long run?

An increase in immigration from abraod

An increase in the price level will most likely cause which of the following?

An increase in the demand for money

A rightward shift of the Short Run Phillips Curve is most likely due to

An increase in the expected rate of inflation

Which of the following actions by the Fed Reserve increase the money supply

Buying government bonds on the open market

An increase in which of the following will most likely increase productivity

Capital Stock

An increase in spending in an economy will cause a multiplied increase in GDP because

Consumption increases as income increases

Of the following, the most liquid asset is

Currency

Assume that the reserve requirement for demand deposits is 20%, that banks hold no excess reserves, and that the public hold no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will

Decrease by $50,000

Which of the following will lead to a depreciation of a nation's currency?

Decreased real interest rates in the nation compared to the rest of the world

An increase in government spending will affect the demand for money and nominal interest rates in which of the following way

Demand for Money: increase Nominal Interest Rates: increase

If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur

Equilibrium quantity will increase

If the economy is in a severe recession, which of the following policy actions is most appropriate

Increase both the Money Supply and government spending

Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will

Increase by less than double (b/c not all the money is in the bank)

Which of the following is LEAST likely to promote economic growth

Increase in the consumption of goods

For an economy that is operating inside its production possibilities curve, which of the following is true

It can increase the production of both goods

Which of the following is true of the opportunity cost of holding cash

It increases as the interest rate rises

Which of the following is true of the Phillips Curve

It is downward sloping in the short run, but it is vertical in the long run

An increase in which of the following would most likely result in an increase in aggregate supply

Labour-force participation rate

If the central bank raises the required reserve ratio, the money multiplier and money supply will change in which of following ways

Money Multiplier: Decrease Money Supply: Decrease

The diagram above shows three production possibilities curves (PPCs). If the currency PPC is PPC1, which of the following changes indicates a recession

Movement from point Y to Z (from on the line to the left point)

Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand?

Net Exports: Increase Aggregate Demand: Increase

If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?

Nominal Interest: Decreases Employment: indeterminate

A contraction in the Money Supply will most likely change the nominal interest rate and aggregate demand in which of the following ways

Nominal interest rate: increase Aggregate Demand: decrease

If unemployment become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways

Number of workers employed: No change Unemployment Rate: Decrease

Assume that SRAS is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level?

Output: increases Price Level :indeterminate

The CPI is criticized for

Overstating the true burden of inflation b/c it does not recognize consumers' ability to substitute goods and services as prices change

If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely do the doubling of

Price Level

Increases in the real per capita income of a country are most closely associated with increases in which of the following

Productivity

If wages and prices are perfectly flexible and inflation is correctly anticipated, then an expansionary monetary policy will affect the real output and price level in which of the following ways?

Real Output: No change Price Level: Increase

An increase in the international value of the United States dollar will most likely benefit

Retired US citizens living overseas on their social security checks

If AD is growing faster than AS, the Fed Reserve is most likely to

Sell securities on the open-market

According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and long-run impact of a demand-pull inflation

Short Run: R to M (to the right of LRAS) Long Run: R to N (LRAS with higher PL)

Inflation occurs when there is a sustained increase in which of the following

The average price level

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of the trade are beneficial to both countries, which of the following must be true?

The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn

Potential GDP will decrease under which of the following conditions?

The country's annual depreciation is greater than its annual gross investment

In the circular flow diagram a market economy, which of the following supplies the factors of production?

The household sector

Country A's growth rate in per capita rGDP has been consistently higher than that of Country B. Which of the following factors can account for these differences in the per capita GDP

The labour force of Country A is becoming more skilled than the labour force of Country B

Which of the following is the most fundamental issues that economists adress

Use of scarce resources

Public Policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following except

borrowers

The main benefit of free trade between two countries is that

each country can consume beyond its constraints of resources and productivity

The natural rate of unemployment can be defined as the

economy's long-run equilibrium rate of unemployment

The purchase of US bonds by Japanese investors will be included in Japan's

finnancial account

On the graph above, stagflation will be caused by a

leftward shift in the SRAS only

In the long run, an increase in AD due to an expansion in the money supply will increase

nominal output and price level

The SRAS would be vertical if

nominal wages adjusted immediately to price level

As a component of AD, investment refers to the

purchase of new equipment and additional inventories

In the short run, government deficit spending will most likely

raise nominal interest rate

Rational Expectations theory suggests that people

use all available information in forming their expectations about future inflation