Macroeconomics 201- exam 3: chp 16,17,20

If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from a. A to B. b. C to D. c. B to A. d. D to C.

b.

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000? a. the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank b. the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 c. the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank d. the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

b.

In the long run, money demand and money supply determine a. the price level and the real interest rate. b. the price level but not the real interest rate. c. the real interest rate but not the price level. d. neither the price level nor the real interest rate.

b.

Most economists believe that the classical model is the appropriate model for analysis of the economy in the a. long run, because evidence indicates that money is not neutral in the long run. b. long run, because real and nominal variables are essentially determined separately in the long run. c. short run, because money is neutral in the short run. d. short run, because real and nominal variables are not highly intertwined in the short run.

b.

On a bank's T-account, which are part of the banks liabilities? a. both deposits made by its customers and reserves b. deposits made by its customers but not reserves c. reserves but not deposits made by its customers d. neither deposits made by its customers nor reserves

b.

The classical dichotomy refers to the idea that the supply of money a. is irrelevant for understanding the determinants of nominal and real variables. b. determines nominal variables, but not real variables. c. determines real variables, but not nominal variables. d. is a determinant of both real and nominal variables.

b.

The discount rate is a. the rate at which public banks lend to other public banks. b. the rate at which the Fed lends to banks. c. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. d. the percentage of deposits banks hold as excess reserves.

b.

The price level rises in the short run if a. aggregate demand or aggregate supply shifts right. 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.

When there is inflation, the number of dollars needed to buy a representative basket of goods a. increases, and so the value of money rises. b. increases, and so the value of money falls. c. decreases, and so the value of money rises. d. decreases, and so the value of money falls

b.

Which of the following helps to explain why the inflation fallacy is a fallacy? a. Increases in the price level can be created by increases in money demand. b. Nominal incomes tend to rise at the same time that the price level is rising. c. As the price level rises, the value of a dollar falls. d. Inflation only changes nominal variables.

b.

A problem that the Fed faces when it attempts to control the money supply is that a. since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c. while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. d. federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

a.

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.

Historically, the change in real GDP during recessions has been a. mostly a change in investment spending. b. mostly a change in consumption spending. c. about equally divided between consumption and investment spending. d. sometimes mostly a change in consumption and sometimes mostly a change in investment.

a.

If the price level falls, the real value of a dollar a. rises, so people will want to buy more. This response helps explain the slope of the aggregate demand curve. b. rises, so people will want to buy more. This response shifts aggregate demand to the right. c. falls, so people will want to buy less. This response helps explain the slope of the aggregate demand curve. d. falls, so people will want to buy less. This response shifts aggregate demand to the left.

a.

Many macroeconomic variables a. ​fluctuate together and by different amounts. b. fluctuate together by the same amounts. c. never fluctuate together. d. fluctuate together about half of the time and by the same amount.

a.

Most economists use the aggregate demand and aggregate supply model primarily to analyze a. short-run fluctuations in the economy. b. the effects of macroeconomic policy on the prices of individual goods. c. the long-run effects of international trade policies. d. productivity and economic growth.

a.

The inflation tax refers to a. the revenue a government creates by printing money. b. higher inflation which requires more frequent price changes. c. the idea that, other things the same, an increase in the tax rate raises the inflation rate. d. taxes being indexed for inflation.

a.

The money supply increases when the Fed a. buys bonds. The increase will be larger, the smaller is the reserve ratio. b. buys bonds. The increase will be larger, the larger is the reserve ratio. c. sells bonds. The increase will be larger, the smaller is the reserve ratio. d. sells bonds. The increase will be larger, the larger is the reserve ratio.

a.

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

a.

Which of the following can the Fed do to change the money supply? a. change reserves or change the reserve ratio b. change reserves but not change the reserve ratio c. change the reserve ratio but not change the reserve ratio d. neither change reserves nor change the reserve ratio

a.

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

a.

Which of the following statements concerning the aggregate demand and aggregate supply model is correct? a. The aggregate demand and aggregate supply model is nothing more than a large version of the model of market demand and supply. b. The price level and quantity of output adjust to bring aggregate demand and supply into balance. c. The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price. d. The aggregate demand shows the quantity of goods and services that firms are willing to produce at a given price level.

b.

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.

If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level a. and output are higher than in the original long-run equilibrium. b. and output are lower than in the original long-run equilibrium. c. is lower and output is the same as the original long-run equilibrium. d. is the same and output is lower than in the original long-run equilibrium.

c.

If the reserve ratio is 20 percent, then $100 of new reserves can generate (1/0.2) x $100 a. $60 of new money in the economy. b. $250 of new money in the economy. c. $500 of new money in the economy. d. $2,000 of new money in the economy.

c.

Suppose the economy starts at Z. Stagflation would be consistent with the move to a. P1 and Y1 . b. P1 and Y3 . c. P3 and Y1 . d. P3 and Y3 .

c.

The aggregate-demand curve a. has a slope that is explained in the same way as the slope of the demand curve for a particular product. b. is vertical in the long run. c. shows an inverse relation between the price level and the quantity of all goods and services demanded. d. All of the above are correct.

c.

The long-run aggregate supply curve shifts right if a. the price level rises. b. the price level falls. c. the capital stock increases. d. the capital stock decreases.

c.

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then a. both the nominal and the real interest rate rise. b. neither the nominal nor the real interest rate rise. c. the nominal interest rate rises, but the real interest rate does not. d. the real interest rate rises, but the nominal interest rate does not.

c.

When the Fed sells government bonds, a. the money supply increases and the federal funds rate increases. b. the money supply increases and the federal funds rate decreases. c. the money supply decreases and the federal funds rate increases. d. the money supply decreases and the federal funds rate decreases.

c.

At a given price level, an increase in which of the following shifts aggregate demand to the right? a. consumption b. investment c. government expenditures d. All of the above are correct.

d.

Banks are able to create money only when a. interest rates are above 2%. b. the Fed sells U.S. government bonds. c. the reserve ratio is 100%. d. only a fraction of deposits are held in reserve.

d.

If the economy is at A and there is a fall in aggregate demand, in the short run the economy a. stays at A. b. moves to B. c. moves to C. d. moves to D.

d.

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it a. must increase required reserves by $50. b. will initially see reserves increase by $500. c. will be able to use this deposit to make new loans amounting to $450. d. All of the above are correct.

d.

Most economists believe that in the short run a. real and nominal variables are determined independently and that money cannot move real GDP away from its long-run trend. b. real and nominal variables are determined independently but that money can temporarily move real GDP away from its long-run trend. c. real and nominal variables are highly intertwined but that money cannot move real GDP away from its long-run trend. d. real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend.

d.

Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1 , then it must be the case that a. short run aggregate supply has decreased. b. short run aggregate supply has increased. c. aggregate demand has increased. d. aggregate demand has decreased.

d.

The classical theory of inflation a. is also known as the quantity theory of money. b. was developed by some of the earliest economic thinkers. c. is used by most modern economists to explain the long-run determinants of the inflation rate. d. All of the above are correct.

d.

Wealth is redistributed from debtors to creditors when inflation is a. high, whether it is expected or not. b. low, whether it is expected or not. c. unexpectedly high. d. unexpectedly low.

d.

When inflation rises, people a. make less frequent trips to the bank and firms make less frequent price changes. b. make less frequent trips to the bank while firms make more frequent price changes. c. make more frequent trips to the bank while firms make less frequent price changes. d. make more frequent trips to the bank and firms make more frequent price changes.

d.

Which of the following both shift aggregate demand left? a. a decrease in taxes and at a given price level consumers feel more wealthy b. a decrease in taxes and at a given price level consumers feel less wealthy c. an increase in taxes and at a given price level consumers feel more wealthy d. an increase in taxes and at a given price level consumers feel less wealthy

d.