Econ 321 Final Exam MCQ

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by ______ and increases the equilibrium level of income by ______.

$1 billion; more than $1 billion

If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of:If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing at a rate of:

5 percent

A fall in consumer confidence about the future, which induces consumers to spend less and save more, will, according to the Mundell-Fleming model with floating exchange rates, lead to:

no change in income but a rise in net exports.

If the short-run aggregate supply curve is horizontal, and, if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

output and employment will decrease in the short run

Assume that the economy begins in long-run equilibrium. Then the Fed reduces the money supply. In the short run ______, whereas in the long run prices ______ and output returns to its original level.

output decreases and prices are unchanged; fall

The balanced growth property of the Solow growth model with population growth and technological progress predicts which of the following sets of variables will grow at the same rate in the steady state?

output per worker, capital per worker, real wage

If the demand function for money is M/P = 0.5Y - 100r and if M/P increases by 100, then the LM curve for any given interest rate shifts to the:

right by 200.

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____.

saving; increased

(Exhibit: Market for Real Money Balances) Based on the graph, if the interest rate is r3, then people will ______ bonds and the interest rate will ______.

sell; rise

If the LM curve is vertical and government spending rises by G, in the IS-LM analysis, then equilibrium income rises by:

zero.

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P.

higher; lower

One argument in favor of tax cuts over spending-based fiscal stimulus is that:

historically tax cuts have been more successful than spending-based fiscal stimulus

In the IS-LM model, a decrease in output would be the result of a(n):

increase in money demand.

In a small open economy with a floating exchange rate, an effective policy to increase equilibrium output is to:

increase the money supply.

(Exhibit: Supply Shock) In this graph, assume that the economy starts at point A and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium and point ______ represents long-run equilibrium.

E; A

If the IS curve is given by Y = 1,700 - 100r and the LM curve is given by Y = 500 + 100r, then equilibrium income and interest rate are given by:

Y = 1,100, r = 6 percent.

The productivity slowdown that began in the 1970s has been attributed, at least partly, to each of the following except:

a decline in the number of workers in the labor force

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

a higher interest rate.

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

between zero and one

In a steady-state economy with population growth n and labor-augmenting technological progress g, persistent increases in standards of living are possible because the:

capital stock grows faster than does the labor force

During the financial crisis of 2008-2009, many financial institutions stopped making loans even to creditworthy customers, which could be represented in the IS-LM model as a(n):

contractionary shift in the IS curve

In the Mundell-Fleming model, if political turmoil raises the risk premium in a country's interest rate, then the exchange rate will ______.

decrease

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will ______, shifting the ______ curve to the right and returning output to the natural level.

decrease; LM

When GDP growth declines, investment spending typically ______ and consumption spending typically ______.

decreases; decreases

A difference between the economic long run and the short run is that:

demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.

In the IS-LM model, which two variables are influenced by the interest rate?

demand for real money balances and investment spending

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

downward and to the left.

In the IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case the interest rate ______ and output ______.

falls; rises

Most economists believe that prices are:

flexible in the long run but many are sticky in the short run.

In the IS-LM analysis, the increase in income resulting from a tax cut is usually ______ the increase in income resulting from an equal rise in government spending.

less than