Econ Final

(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the rate of interest is below equilibrium, there will be an excess _____ money and the interest rate will _____. A) demand for; rise B) supply of; fall C) demand for; fall D) supply of; rise

A

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. A movement from AD1 to AD3 could be caused by: A) increased government purchases. B) decreased government transfers. C) higher tax rates. D) decreased government purchases.

A

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E2, the economy: A) is in equilibrium. B) has an inflationary gap. C) has a recessionary gap. D) has high unemployment.

A

(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, it is in a(n): A) recessionary gap. B) inflationary gap. C) high level of unemployment. D) liquidity trap.

A

(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, the appropriate policy to return the economy to potential output is a(n): A) increase in transfer payments. B) decrease in transfer payments. C) increase in taxes. D) decrease in government spending.

A

(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____ . A) expansionary; right B) expansionary; left C) contractionary; right D) contractionary; left

A

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. Appropriate fiscal policy action is: A) a decrease in transfer payments. B) an increase in government purchases. C) a decrease in tax rates. D) an increase in transfer payments.

A

(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose that actual output is 700 billion arcs, and the government of Arcadia decides to tax its citizens. To bring the economy to potential output, the government should: A) increase taxes by 33.33 billion arcs. B) increase taxes by 3.33 billion arcs. C) keep taxes at zero. D) increase both taxes and government spending by 0.33 billion arcs.

A

(Scenario: Taylor Rule) Look at the scenario Taylor Rule. In this case, the Federal Reserve will set the federal funds rate at: A) 9.8%. B) 6.25%. C) 5.75%. D) 4.75%.

A

A 30% increase in the aggregate price level will: A) increase money demand by 30%. B) increase money demand by the money multiplier. C) decrease money demand by 30%. D) not affect the demand for money.

A

Consumer spending will likely rise if: A) government transfers rise. B) the government raises tax rates. C) government transfers fall. D) the government raises tax rates or government transfers fall.

A

If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008 it was 2%, the opportunity cost of holding money: A) decreased. B) became negative. C) increased. D) did not change.

A

If interest rates rise, there will be a(n): A) decrease in aggregate demand. B) increase in aggregate demand. C) increase in aggregate supply. D) increase in the money supply.

A

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should decrease government purchases of goods and services by $40 billion. A) True B) False

A

If the economy is at equilibrium below potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate. A) recessionary; expansionary B) inflationary; expansionary C) recessionary; contractionary D) inflationary; contractionary

A

If the economy is at potential output and the Fed increases the money supply, in the SHORT run the likely result will be a(n) _____ in investment and a(n) _____ in consumption. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

A

In a graph of a money demand curve, _____ is plotted on the vertical axis. A) the interest rate on liquid assets such as short-term CDs B) the interest rate on 30-year Treasury bills C) the rate of inflation D) the rate of return in the stock market

A

In the basic equation of national income accounting, GDP = C + I + G + X - IM, the government directly controls _____ and influences _____ through fiscal policy. A) G; C and I B) T; G and C C) C; X and M D) I; G and T

A

Social insurance programs are: A) government programs intended to protect families against economic hardships. B) private insurance policies to protect families from hardships caused by government actions. C) private insurance policies that cover gaps in government-provided health care. D) programs to help unemployed people have a social life.

A

The 2009 U.S. stimulus was a(n) _____ fiscal policy that _____ aggregate demand. A) expansionary; increased B) expansionary; decreased C) contractionary; increased D) contractionary; decreased

A

The interest earnings one gives up to hold more liquid assets are: A) an opportunity cost. B) a transaction cost. C) an asset of the company. D) a liability of the company.

A

Which of the following monetary policies would be destabilizing? I. an expansionary policy during an expansion II. an expansionary policy during a recession III. a contractionary policy during an expansion A) I only B) II only C) III only D) I, II, and III

A

(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____. A) demand for; rise B) supply of; fall C) demand for; fall D) supply of; rise

B

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD', the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; maintain

B

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E3, the economy: A) is in equilibrium. B) has an inflationary gap. C) has a recessionary gap. D) is stagnating.

B

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures an inflationary gap? A) Y3 - Y1 B) Y3 - Y2 C) Y2 - Y1 D) Y3 - Y0

B

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, it is in a(n): A) recessionary gap. B) inflationary gap. C) high level of unemployment. D) liquidity trap.

B

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the appropriate policy to return the economy to potential output would be a(n): A) increase in government spending. B) decrease in government spending. C) increase in transfer payments. D) decrease in taxes.

B

(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the central bank buys Treasury bills, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the: A) money supply curve to MS2, which raises the interest rate. B) supply of loanable funds from S1 to S2, which lowers the interest rate. C) supply of loanable funds from S2 to S1, which raises the interest rate. D) interest rate from r2 to r1.

B

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, it is in a(n): A) recessionary gap. B) inflationary gap. C) high level of unemployment. D) liquidity trap.

B

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. It reflects a short-run inflationary gap. According to the labeling on the graph, the size of the inflationary gap is equal to: A) P2 - P1. B) Y1 - YP. C) P2 - P0. D) P1 - P0.

B

(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose the government decides to tax its citizens. The tax multiplier is: A) greater than the government spending multiplier. B) less than the government spending multiplier. C) zero, because changes in taxes have no effect on aggregate demand. D) impossible to determine.

B

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government purchases of goods and services by $75 billion. A) True B) False

B

If the economy is at equilibrium above potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate.: A) recessionary; expansionary B) inflationary; contractionary C) recessionary; contractionary D) inflationary; expansionary

B

If the economy is at potential output and the Fed increases the money supply, in the SHORT run interest rates will likely: A) increase. B) decrease. C) remain constant. D) fluctuate randomly

B

Monetary policy affects GDP and the price level by: A) changing aggregate supply. B) changing aggregate demand. C) changing the aggregate amount of labor supplied. D) changing exports.

B

Monetary policy affects aggregate demand through changes in: A) government spending. B) consumer and investment spending. C) tax receipts. D) export demand.

B

Suppose the economy is in an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to: A) lower tax rates. B) decrease government purchases. C) increase the investment tax credit. D) lower the real interest rate.

B

The federal government's largest source of revenue is: A) property taxes. B) personal income and corporate profit taxes. C) sales taxes. D) social insurance taxes.

B

When the short-term interest rate _____, the opportunity cost of holding money _____, and the quantity of money individuals want to hold _____. A) falls; falls; falls B) falls; falls; rises C) rises; falls; falls D) rises; falls; rises

B

(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. Equilibrium will occur at interest rate _____ and quantity of money _____. A) r2; Q0 B) r0; Q2 C) r1; Q1 D) r1; Q2

C

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD: A) a contractionary fiscal policy may be warranted. B) an expansionary fiscal policy may be warranted. C) no change in discretionary fiscal policy is warranted. D) the economy is in an inflationary gap.

C

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. A movement from AD3 to AD1 could be caused by: A) increased government purchases. B) increased government transfers. C) higher tax rates. D) lower tax rates.

C

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. At E1, the economy: A) is in equilibrium. B) has an inflationary gap. C) has a recessionary gap. D) has low unemployment.

C

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. Which of the following measures a recessionary gap? A) Y3 - Y1 B) Y3 - Y2 C) Y2 - Y1 D) Y3 - Y0

C

(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. The government should _____ aggregate demand by _____ taxes to close the _____ gap. A) expand; increasing; inflationary B) reduce; cutting; inflationary C) expand; cutting; recessionary D) reduce; increasing; recessionary

C

(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the central bank buys Treasury bills, then in the short run the interest rate will: A) increase above r1. B) remain at r1. C) decrease to r2. D) fluctuate randomly.

C

(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS2 and the central bank sells Treasury bills, then in the short run the interest rate will: A) decrease below r2. B) remain at r2. C) increase to r1. D) fluctuate randomly.

C

(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS2 and the central bank sells Treasury bills, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the: A) money supply curve to MS1, which lowers the interest rate. B) supply of loanable funds from S1 to S2, which lowers the interest rate. C) supply of loanable funds from S2 to S1, which raises the interest rate. D) interest rate from r1 to r2.

C

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the appropriate policy to return the economy to potential output would be a(n): A) increase in transfer payments. B) increase in government spending. C) increase in taxes. D) decrease in taxes.

C

(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. If actual output is 500 billion arcs, to restore the economy to potential output the government should _____ by 25 billion arcs. A) increase taxes B) decrease taxes C) increase spending D) decrease spending

C

(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. The government spending multiplier is: A) 5. B) 0.75. C) 4. D) 3.

C

(Scenario: Taylor Rule) Look at the scenario Taylor Rule. The economy has: A) an inflationary gap, since the inflation rate is high. B) a recessionary gap, since the economy is not producing potential GDP. C) an inflationary gap, since actual real GDP exceeds potential real GDP. D) a recessionary gap, since potential real GDP exceeds actual real GDP.

C

A change in taxes or a change in government transfers affects consumption through its effect on: A) autonomous consumption. B) the marginal propensity to save. C) disposable income. D) government spending.

C

Contractionary monetary policy: A) increases aggregate demand. B) increases aggregate supply. C) works by discouraging investment spending. D) decreases interest rates.

C

Expansionary fiscal policy: A) increases long-run aggregate supply. B) decreases long-run aggregate supply. C) increases aggregate demand. D) decreases aggregate demand.

C

If the economy is at potential output and the Fed increases the money supply, in the SHORT run the aggregate demand will likely: A) shift to the left. B) remain the same. C) increase. D) decrease.

C

The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects: A) IM. B) I. C) C. D) X.

C

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD, the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates. A) decrease; increase B) decrease; maintain C) increase; increase D) increase; maintain

D

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is ADʺ, the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates. A) increase; decrease B) increase; maintain C) decrease; decrease D) decrease; maintain

D

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____. A) expansionary; right B) expansionary; left C) contractionary; right D) contractionary; left

D

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. Which of the following would be the appropriate response on the part of the government upon viewing the state of the economy? A) Increase government spending to close the recessionary gap. B) Decrease government spending to close the recessionary gap. C) Lower tax rates to close the inflationary gap. D) Raise tax rates to close the inflationary gap.

D

(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the Fed conducts expansionary monetary policy, in the short run the interest rate drops to r2. In the long run prices will _____ the demand for money. A) decrease, decreasing B) decrease, increasing C) increase, decreasing D) increase, increasing

D

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____. A) expansionary; right B) expansionary; left C) contractionary; right D) contractionary; left

D

A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____. A) increases labor costs to companies, increasing investment; left B) decreases government purchases of goods and services, decreasing consumption; right C) increases the marginal propensity to save, decreasing consumption; right D) decreases disposable income and consumption; left

D

An increase in the demand for money would result from a(n): A) decrease in nominal GDP. B) decrease in real GDP. C) decrease in the price level. D) increase in the price level.

D

Expansionary monetary policy increases all of the following EXCEPT: A) aggregate demand. B) GDP and the price level. C) consumption spending. D) interest rates.

D

If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is: A) zero. B) 0.02%. C) 1%. D) 2%.

D

If inflation increases from 2% to 5%, the money demand curve will: A) remain constant. B) remain constant, but the quantity of money demanded will decrease. C) shift to the left. D) shift to the right.

D

Short-term interest rates apply to financial assets due within: A) 24 hours. B) three months. C) six months. D) one year.

D

Which of the following is NOT an example of government transfers? A) Medicaid-paid prescription drugs for low-income individuals B) unemployment insurance C) a Social Security disability pension D) a reimbursement of personal income tax withheld from wages

D