Econ Final Exam

In the long run, if the Fed decreases the growth rate of the money supply, inflation will be lower. unemployment will be higher. real GDP will be lower. All of the above are correct.

inflation will be lower.

When the money supply increases: -interest rates fall and so aggregate demand shifts right -interest rates fall and so aggregate demand shifts left -interest rates rise and so aggregate demand shifts right -interest rates rise and so aggregate demand shift left

interest rates fall and so aggregate demand shifts right

If the Fed conducts open-market purchases, then which of the following quantities increase(s)? interest rates and investment spending interest rates, but not investment spending investment spending, but not interest rates neither interest rates nor investment spending

investment spending, but not interest rates

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. Refer to Scenario 34-1. The marginal propensity to consume for this economy is: 0.650. 0.750. 0.650 or 0.664, depending on whether income is $10,000 or $11,000. 0.800.

0.750.

Changes in the price level affect which components of aggregate demand? only consumption and investment only consumption and net exports only investment consumption, investment, and net exports

consumption, investment, and net exports

If the Fed conducts open-market sales, the money supply: increases and aggregate demand shifts right. increases and aggregate demand shifts left. decreases and aggregate demand shifts right. decreases and aggregate demand shifts left.

decreases and aggregate demand shifts left.

According to monetary neutrality, changes in the money supply affect nominal variables and real variables. nominal variables, but not real variables. real variables, but not nominal variables. neither nominal nor real variables.

nominal variables, but not real variables.

W.

Refer to Figure 33-7. If the economy starts at Y, then a recession occurs at V. W. X. Z.

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is $60.25. $60.75. $61.33. $64.00.

$60.75.

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into a(n): $570 increase in aggregate demand when the crowding-out effect is taken into account. $800 increase in aggregate demand when the crowding-out effect is taken into account. $1,400 increase in aggregate demand in the absence of the crowding-out effect. $800 increase in aggregate demand in the absence of the crowding-out effect.

$800 increase in aggregate demand in the absence of the crowding-out effect.

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. Refer to Scenario 34-1. The multiplier for this economy is: 2.85. 1.53. 4.00. 7.00.

4.00.

If the MPC = 4/5, then the government purchases multiplier is 5/4. 4/5. 5. 20.

5.

Critics of stabilization policy argue that: there is a lag between the time policy is passed and the time policy has an impact on the economy. the impact of policy may last longer than the problem it was designed to offset. policy can be a source of, instead of a cure for, economic fluctuations. All of the above are correct.

All of the above are correct.

The sticky-price theory implies that the short-run aggregate-supply curve is upward-sloping. an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce. menu costs influence the speed of adjustment of prices. All of the above are correct.

All of the above are correct.

Which of the following correctly explains the crowding-out effect? An increase in government expenditures decreases the interest rate and so increases investment spending. An increase in government expenditures increases the interest rate and so reduces investment spending. A decrease in government expenditures increases the interest rate and so increases investment spending. A decrease in government expenditures decreases the interest rate and so reduces investment spending.

An increase in government expenditures increases the interest rate and so reduces investment spending.

Which of the following statements is correct? -In the short run, unemployment and inflation are positively related. In the long run they are largely unrelated problems. -Inflation and unemployment are positively related in the short run and in the long run. -In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems. -Inflation and unemployment are negatively related in the short run and in the long run.

In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated problems.

Suppose that as a result of a stock market boom, consumers become less concerned about saving for retirement and increase their current consumption expenditures. Which of the following would you expect to occur as a result of this change? In the short run, unemployment will increase and inflation will fall. ​In the short run, unemployment will increase and inflation will rise. In the short run, unemployment will decrease and inflation will rise. ​In the short run, unemployment will decrease and inflation will fall

In the short run, unemployment will decrease and inflation will rise.

Suppose a recession in Europe reduces U.S. net exports at every price level. Which of the following would you expect to occur in the U.S. as a result of this change? In the short run, unemployment will increase and inflation will fall. ​In the short run, unemployment will increase and inflation will rise. ​In the short run, unemployment will decrease and inflation will rise. ​In the short run, unemployment will decrease and inflation will fall.

In the short run, unemployment will increase and inflation will fall.

moves to D.

Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy stays at A. moves to B. moves to C. moves to D.

moves to C in the long run.

Refer to Figure 33-4. If the economy starts at A and moves to D in the short run, the economy moves to A in the long run. moves to B in the long run. moves to C in the long run. stays at D in the long run.

moves to C in the long run.

Refer to Figure 33-4. If the economy starts at A and moves to D in the short run, the economy: moves to A in the long run. moves to B in the long run. moves to C in the long run. stays at D in the long run.

to C in the long run

Refer to Figure 33-4. If the economy starts at A and there is a fall in aggregate demand, the economy moves back to A in the long run. to B in the long run. to C in the long run. to D in the long run.

D and moved to C.

Refer to Figure 33-4. The economy would be moving to long-run equilibrium if it started at A and moved to B. C and moved to B. D and moved to C. None of the above is correct.

Money demand increases

Refer to Figure 34-4. Suppose the current equilibrium interest rate is r1. Which of the following events would cause the equilibrium interest rate to increase? The Federal Reserve increases the money supply. Money demand increases. The price level decreases. All of the above are correct.

a decrease in the price level

Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3? a decrease in the price level a decrease in the number of firms building new factories and buying new equipment an increase in the price level an increase in the number of firms building new factories and buying new equipment

an increase in the money supply.

Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be an increase in the money supply. a decrease in government purchases. an increase in taxes. All of the above are correct.

It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2.

Refer to Figure 34-7. Which of the following is correct? A wave of optimism could move the economy from point a to point b. If aggregate demand moves from AD1 to AD2, the economy will stay at point b in both the short run and long run. It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. All of the above are correct.

shift aggregate demand from AD1 to AD2.

Refer to Figure 34-8. An increase in government purchases will shift aggregate demand from AD1 to AD2. shift aggregate demand from AD1 to AD3. cause movement from point A to point B along AD1. have no effect on aggregate demand.

shift aggregate demand from AD1 to AD3.

Refer to Figure 34-8. An increase in taxes will shift aggregate demand from AD1 to AD2. shift aggregate demand from AD1 to AD3. cause movement from point A to point B along AD1. have no effect on aggregate demand.

V

Suppose the economy starts at Y. If aggregate demand increases from AD2 to AD3, then the economy moves to: V W X Z

Z in the long run

Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to: -V in the long run -W in the long run -X in the long run -Z in the long run

Which of the following is an example of an increase in government purchases? The government builds new roads. The Federal Reserve purchases government bonds. The government decreases personal income taxes. The government increases unemployment insurance benefit payments.

The government builds new roads.

If the stock market crashes, then: aggregate demand increases, which the Fed could offset by increasing the money supply. aggregate demand increases, which the Fed could offset by decreasing the money supply. aggregate demand decreases, which the Fed could offset by increasing the money supply. aggregate demand decreases, which the Fed could offset by decreasing the money supply.

aggregate demand decreases, which the Fed could offset by increasing the money supply.

The initial impact of the repeal of an investment tax credit is to shift: -aggregate demand right -aggregate demand left -aggregate supply left -aggregate supply right

aggregate demand left

The initial impact of an increase in an investment tax credit is to shift: aggregate demand right. aggregate demand left. aggregate supply right. aggregate supply left.

aggregate demand right.

Other things the same, when the government spends more, the initial effect is that: aggregate demand shifts right. aggregate demand shifts left. aggregate supply shifts right. aggregate supply shifts left.

aggregate demand shifts right.

Which of the following results in higher inflation and higher unemployment in the short run? a more expansionary monetary policy a more contractionary monetary policy a decrease in the minimum wage an adverse supply shock such as an increase in the price of oil

an adverse supply shock such as an increase in the price of oil

Which of the following events shifts aggregate demand rightward? an increase in government expenditures or a decrease in the price level a decrease in government expenditures or an increase in the price level an increase in government expenditures, but not a change in the price level a decrease in the price level, but not an increase in government expenditures

an increase in government expenditures, but not a change in the price level

A central bank sets out to reduce unemployment by changing the money supply growth rate. The long-run Phillips curve shows that in comparison to their original rates, this policy will eventually lead to: an increase in both the inflation rate and the unemployment rate. an increase in the inflation rate and a reduction in the unemployment rate. no change in either the inflation rate or the unemployment rate. an increase in the inflation rate and no change in the unemployment rate.

an increase in the inflation rate and no change in the unemployment rate.

Automatic stabilizers: increase the problems that lags cause in using fiscal policy as a stabilization tool. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. All of the above are correct.

are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.

If the Fed wants to reverse the effects of a favorable supply shock on unemployment, it should: increase the money supply growth rate which raises the inflation rate. increase the money supply growth rate which reduces the inflation rate. decrease the money supply growth rate which raises the inflation rate. decrease the money supply growth rate which reduces the inflation rate

decrease the money supply growth rate which reduces the inflation rate

Most economists believe that money neutrality: does not hold in the short run. does not hold in the long run. does not hold in either the short run or long run. holds in the short run and the long run.

does not hold in the short run.

Other things the same, when the price level falls, interest rates: rise, so firms increase investment. rise, so firms decrease investment. fall, so firms increase investment. fall, so firms decrease investment.

fall, so firms increase investment.

A favorable supply shock causes the price level to: rise. To counter this a central bank would increase the money supply. rise. To counter this a central bank would decrease the money supply. fall. To counter this a central bank would increase the money supply. fall. To counter this a central bank would decrease the money supply.

fall. To counter this a central bank would increase the money supply.

During a recession the economy experiences: rising employment and income. rising employment and falling income. rising income and falling employment. falling employment and income.

falling employment and income.

Permanent tax cuts shift the AD curve farther to the right than do temporary tax cuts. not as far to the right as do temporary tax cuts. farther to the left than do temporary tax cuts. not as far to the left as do temporary tax cuts

farther to the right than do temporary tax cuts.

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases, firms may believe the relative price of their output has risen. real wealth declines. the interest rate increases. the exchange rate increases.

firms may believe the relative price of their output has risen.

A policy intended to reduce unemployment by taking advantage of a tradeoff between inflation and unemployment leads to: both higher inflation and higher unemployment in the long run. higher inflation and no change in unemployment in the long run. the same inflation rate and lower unemployment in the long run. higher inflation and lower unemployment in the long run

higher inflation and no change in unemployment in the long run.

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change in the price level and output. in the price level, but not output. in output, but not the price level. in neither the price level nor output.

in the price level, but not output.

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could increase the money supply by buying bonds. increase the money supply by selling bonds. decrease the money supply by buying bonds. increase the money supply by selling bonds.

increase the money supply by buying bonds.

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has: decreased, so they increase production. decreased, so they decrease production. increased, so they increase production. increased, so they decrease production.

increased, so they increase production.

During a recession, unemployment: -increases -decreases -is equal to the natural rate of unemployment -is frictional unemployment minus structural unemployment

increases

Which of the following shifts aggregate demand to the right? a decrease in the money supply increases in the profitability of capital due perhaps to technological progress. the repeal of an investment tax credit a decrease in the price level

increases in the profitability of capital due perhaps to technological progress.

There is an adverse supply shock. In response the Federal Reserve pursues an expansionary monetary policy. Taking into account both the shock and the Federal Reserve's policy, which of the following are we sure of? unemployment will be higher unemployment will be lower inflation will be higher inflation will be lower

inflation will be higher

Other things the same, the aggregate quantity of output supplied will increase if the price level: is lower than expected so that firms believe the relative price of their output has increased. is lower than expected so that firms believe the relative price of their output has decreased. is higher than expected so that firms believe the relative price of their output has increased. is higher than expected so that firms believe the relative price of their output has decreased.

is higher than expected so that firms believe the relative price of their output has increased.

An adverse supply shock will shift short-run aggregate supply right, making prices rise. left, making prices rise. right, making prices fall. left, making prices fall.

left, making prices rise

Other things the same, an increase in the price level makes customers feel: -less wealthy, so the quantity of goods and services demanded falls -less wealthy, so the quantity of goods and services demanded rises -more wealthy, so the quantity of goods and services demanded rises -more wealthy, so the quantity of goods and services demanded falls

less wealthy, so the quantity of goods and services demanded falls

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have: -higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. -higher than desired prices, which leads to a decrease in the aggregate quantity of goods and service supplied. -lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. -lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied

lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.

As the price level rises: people will want to hold more money, so the interest rate rises. people will want to hold more money, so the interest rate falls. people will want to hold less money, so the interest rate falls. people will want to hold less money, so the interest rate rises.

people will want to hold more money, so the interest rate rises.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected: production is more profitable and employment rises. production is more profitable and employment falls. production is less profitable and employment rises. production is less profitable and employment falls.

production is less profitable and employment falls.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is more profitable and employment rises. production is more profitable and employment falls. production is less profitable and employment rises. production is less profitable and employment falls.

production is more profitable and employment rises.

Which of the following is not included in aggregate demand? purchases of stock and bonds purchases of services such as visits to the doctor purchases of capital goods such as equipment in a factory purchases by foreigners of consumer goods produced in the United States

purchases of stock and bonds

Other things the same, a fall in an economy's overall level of prices tends to: raise both the quantity demanded and supplied of goods and services. raise the quantity demanded of goods and services, but lower the quantity supplied. lower the quantity demanded of goods and services, but raise the quantity supplied. lower both the quantity demanded and the quantity supplied of goods and services.

raise the quantity demanded of goods and services, but lower the quantity supplied.

When we say that economic fluctuations are "irregular and unpredictable," we mean that: the relationship between output and unemployment is erratic and difficult to characterize. when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising. recessions do not occur at regular intervals. All of the above are correct.

recessions do not occur at regular intervals.

By raising aggregate demand more than anticipated, policymakers reduce unemployment for awhile. raise unemployment for awhile. reduce unemployment permanently. None of the above is correct.

reduce unemployment for awhile.

Disinflation is a reduction in the price level, whereas deflation is a reduction in the rate of inflation. reduction in the rate of inflation, whereas deflation is a reduction in the price level. slow reduction in the price level, whereas deflation is a rapid reduction in the price level. rapid reduction in the price level, whereas deflation is a slow reduction in the price level.

reduction in the rate of inflation, whereas deflation is a reduction in the price level.

Other things the same, when the price level rises, interest rates: -rise, so firms increase investment -rise, so firms decrease investment fall, so firms increase investment

rise, so firms decrease investment

If the price level falls, the real value of a dollar: rises, so people will want to buy more. rises, so people will want to buy less. falls, so people will want to buy more. falls, so people will want to buy less.

rises, so people will want to buy more.

Tax increases: and increases in government expenditures shift aggregate demand right. and increases in government expenditures shift aggregate demand left. shift aggregate demand right while increases in government expenditures shift aggregate demand left. shift aggregate demand left while increases in government expenditures shift aggregate demand right.

shift aggregate demand left while increases in government expenditures shift aggregate demand right.

Menu costs help explain: sticky-price theory. misperceptions theory. sticky-wage theory. All of the above are correct.

sticky-price theory.

The long-run aggregate supply curve shifts right if technology improves. the price level decreases. the money supply increases. All of the above are correct.

technology improves.

Monetary policy is determined by the president and Congress and involves changing government spending and taxation. the president and Congress and involves changing the money supply. the Federal Reserve and involves changing government spending and taxation. the Federal Reserve and involves changing the money supply.

the Federal Reserve and involves changing the money supply.

People choose to hold a larger quantity of money if the interest rate rises, which causes the opportunity cost of holding money to rise. the interest rate falls, which causes the opportunity cost of holding money to rise. the interest rate rises, which causes the opportunity cost of holding money to fall. the interest rate falls, which causes the opportunity cost of holding money to fall.

the interest rate falls, which causes the opportunity cost of holding money to fall.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes the interest rate to fall, so aggregate demand shifts right. the interest rate to fall, so aggregate demand shifts left. the interest rate to rise, so aggregate demand shifts right. the interest rate to rise, so aggregate demand shifts left.

the interest rate to fall, so aggregate demand shifts right.

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in the price level. the interest rate. the exchange rate. real wealth.

the interest rate.

The long-run Phillips curve would shift left if: the money supply increased or if the minimum wage was reduced. the money supply increased but not if the minimum wage was reduced. the minimum wage was reduced but not if the money supply increased. None of the above is correct.

the minimum wage was reduced but not if the money supply increased.

Fiscal policy is determined by the president and Congress and involves changing government spending and taxation. the president and Congress and involves changing the money supply. the Federal Reserve and involves changing government spending and taxation. the Federal Reserve and involves changing the money supply.

the president and Congress and involves changing government spending and taxation.

Which of the following is not a determinant of the long-run level of real GDP? the price level. the amount of capital used by firms. available stock of human capital. available technology

the price level

If aggregate demand shifts left, then in the short run the price level and real GDP both rise. the price level rises and real GDP falls. the price level falls and real GDP rises. the price level and real GDP both fall.

the price level and real GDP both fall.

Which of the following adjust to bring aggregate supply and demand into balance? -the price level and real output -the real rate of interest and the money supply -government expenditures and taxes

the price level and real output

Aggregate demand includes: -only the quantity of goods and services households want to buy -only the quantity of goods and services households and firms want to buy -only the quantity of goods and services households, firms, and the government want to buy -the quantity of goods and services households, firms, the government, and customers abroad want to buy

the quantity of goods and services households, firms, the government, and customers abroad want to buy

Aggregate demand includes: the quantity of goods and services the government, households, firms, and customers abroad want to buy. 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. 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. 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.

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

An increase in the expected price level shifts the short-run and long-run aggregate supply curves left. the short-run but not the long-run aggregate supply curve left. the long-run but not the short-run aggregate supply curve left. neither the long-run nor the short-run aggregate supply curve left.

the short-run but not the long-run aggregate supply curve left.

The short-run Phillips curve shows the combinations of: -unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve. -unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. -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. -None of the above is correct.

unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.

An example of an automatic stabilizer is: unemployment benefits. a lowering of interest rates by the Fed. a decrease in money demand. a decrease in tax rates in response to a recession.

unemployment benefits.

A favorable supply shock will cause: unemployment to rise and the short-run Phillips curve to shift right. unemployment to rise and the short-run Phillips curve to shift left. unemployment to fall and the short-run Phillips curve to shift right. unemployment to fall and the short-run Phillips curve to shift left.

unemployment to fall and the short-run Phillips curve to shift left.

In the graph of the money market, the money supply curve is: vertical. It shifts rightward if the Fed buys bonds. vertical. It shifts rightward if the Fed sells bonds. upward sloping. It shifts rightward if the Fed buys bonds. upward sloping. It shifts rightward if the Fed sells bonds.

vertical. It shifts rightward if the Fed buys bonds.