Macro final

B

"Real money balances" refers to ________. A) money that is actually available to be spent B) the quantity of goods and services that money can buy C) gold and silver D) all of the above E) none of the above

A

According to liquidity preference theory, as real income increases, so does ________. A) the demand for real money balances B) the real interest rate C) the supply of real money balances D) all of the above E) none of the above

C

A decline in the money stock will A) shift the IS schedule downward and to the right B) not have any effect on the LM schedule C) shift the LM schedule to the left D) shift the LM schedule to the right

A

A production possibilities frontier with a bowed outward shape indicates A) increasing opportunity costs as more and more of one good is produced. B) the possibility of inefficient production. C) constant opportunity costs as more and more of one good is produced. D) decreasing opportunity costs as more and more of one good is produced.

A

A rise in the price of a bond causes the yield of the bond to A) fall. B) rise. C) rise if it's a short-term bond, fall if it's a long-term bond. D) remain unchanged.

D

A tax cut ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant. A) decreases; increases; left B) increases; decreases; right C) decreases; decreases; left D) increases; increases; right

B

A vertical aggregate supply schedule implies that A) real wages cannot impact output B) the price level does not impact output C) aggregate demand is horizontal D) unemployment cannot impact output

A

A winter ice storm has paralyzed the entire east coast, reducing productivity sharply. This supply shock shifts the marginal product of labor curve A) down and to the left, reducing the quantity of labor demanded at any given real wage. B) up and to the right, raising the quantity of labor demanded at any given real wage. C) down and to the left, raising the quantity of labor demanded at any given real wage. D) up and to the right, reducing the quantity of labor demanded at any given real wage.

B

According to the Price-Specie-Flow mechanism, if half the gold in England disappeared over night the effect would be to A) double the price level. B) reduce the price level by 50%. C) make English goods more expensive to French residents. D) None of the above.

C

According to the classical model shown in the figure, an exogenous decline in investment shifts the investment schedule to the left, from i0 to i1, causing the equilibrium interest rate to decline. Distance B in the figure describes an interest rate induced A) decline in saving, which is an equal increase in consumption B) decrease in investment C) increase in the quantity of investment D) decline in saving, which exceeds the increase in consumption

C

According to the classical model, a 10-percent increase in the money supply, holding everything else constant, will lead to A) a 10% increase in prices and no change in the money wage or interest rates B) a 10% increase in prices, a 10% increase in the money wage, and no change in nominal interest rates C) a 10% increase in prices, a 10% increase in the money wage, and a 10% increase in nominal interest rates D) a 10% increase in prices, a 10% increase in the real wage, and a 10% increase in real interest rates

C

According to the classical model, changes in aggregate demand are driven by A) changes in fiscal policy B) changes in taxes C) changes in the money supply D) changes in borrowing and lending

C

According to the quantity theory of money, the quantity of money determines the A) level of real output B) level of employment C) price level D) interest rate

C

Adam Smith's invisible hand refers to A) the government's unobtrusive role in ensuring that the economy functions efficiently. B) property ownership laws and the rule of the court system. C) the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole. D) the laws of nature that influence economics decisions.

D

An increase in spending that results from expansionary ________ policy causes the interest rate to ________, everything else held constant. A) incomes; fall B) fiscal; fall C) incomes; rise D) fiscal; rise

D

An increase in the money supply would cause the IS curve to A) shift down and to the left. B) shift up and to the right. C) shift up and to the right only if people face borrowing constraints. D) remain unchanged.

D

An invention that speeds up the Internet is an example of A) an income effect. B) an increase in labor. C) a substitution effect. D) a supply shock.

D

As the nominal interest rate increases ________. A) the opportunity cost of holding money rises B) the quantity of money demanded falls C) it becomes more costly to hold money instead of bonds D) all of the above E) none of the above

B

Assume that autonomous consumption equals $200 and disposable income equals $1000. If total consumption equal $800, then the mpc equals A) 0.2. B) 0.6. C) 0.8. D) 1.0.

B

Assume that the classical labor market can be represented by the following equations: Aggregate Production Function: Y = 200 + 5N Labor Demand: Nd = 50 - 4(W/P) Labor Supply: Ns = 40 + (W/P) What is equilibrium W/P, N, and Y A) W/P = 50, N = 300, and Y = 3500 B) W/P = 2, N = 42, and Y = 410 C) W/P = 2, N = 10, and Y = 250 D) Cannot be determined from information given

A

Assuming that money is neutral, an increase in the nominal money supply would cause A) a rise in nominal wages. B) an excess supply for goods. C) an increase in the real money supply. D) a fall in the price level.

B

By referring to Figure above, an increase in the money stock A) leaves the LM curve unchanged at LM0 B) shifts the LM schedule to the right from LM0 to LM1 C) shifts the LM schedule to the left from LM0 to LM2 D) shifts neither the IS nor the LM schedule

B

Classical economists A) believed that prices would increase more than proportionate to an increase in the money supply B) argued that the money supply determined aggregate demand C) believed that the quantity of money influences interest rates and real wages D) regarded monetary policy as unimportant since the quantity of money does not determine the price level

C

If Md = 3,000 — 400r and Ms = 2,000, the MPC = .85, G=100, and T = 120, then the equilibrium interest rate is A) 10 B) 5.0 C) 2.5 D) 20

A

Economic decline (negative growth) is represented on a production possibilities frontier model by the production possibility frontier A) shifting inward. B) becoming steeper. C) becoming flatter. D) shifting outward.

D

Economists define investment as the purchase of A) any physical asset used by business to increase production and the repurchase of common stock. B) any physical asset, whether new or not, used by business to increase production. C) business spending on capital and household spending on durable goods. D) a new physical asset such as a new machine or a new house.

B

Everything else held constant, if aggregate output is to the left of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________. A) supply; fall B) demand; rise C) supply; rise D) demand; fall

C

Fiscal policy encompasses all of the following except A) taxation by the government. B) expenditures by the government. C) monetary injection by the government. D) borrowing by the government.

D

If aggregate demand falls short of current output, business firms will ________ production to ________ inventories. A) expand; build up B) cut; build up C) expand; keep from accumulating D) cut; keep from accumulating

B

If aggregate output is above its equilibrium level ________. A) actual output is below planned expenditure B) there is an excess supply of goods C) firms will tend to replenish their low inventories driving output up toward equilibrium D) all of the above E) none of the above

D

If government spending and tax collections both increase by the same amount, then according to the classical loanable funds market A) the demand for loanable funds will fall and the interest rate will rise B) the demand for loanable funds will increase and the interest rate will rise C) savings will rise and interest rates will fall D) nothing will shift and the interest rate will remain constant

C

If the consumption function is C = 20 + 0.5YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by A) $25. B) $70. C) $50. D) $100.

B

If the consumption function is given by C = 100 + .6(Y-T) and planned investment is 150, government spending is 50, and T is 100, then equilibrium income is A) 300 B) 600 C) 420 D) 750

D

If the demand for labor is plotted against the money wage, with the money wage on the vertical axis, then A) an increase in the money wage will cause the labor demand schedule to shift to the right B) the labor demand schedule will be upward sloping C) an increase in the money wage will cause the labor demand schedule to shift to the left D) an increase in the price level will cause the labor demand schedule to shift to the right

B

If the economy is on the IS curve, but is to the right of the LM curve, aggregate output will ________ and the interest rate will ________. A) rise; rise B) fall; rise C) fall; fall D) rise; fall

E

If the government reduces spending ________. A) output will increase if interest rates remain fixed B) the IS curve will shift to the right C) consumption will increase D) all of the above E) none of the above

A

If the marginal propensity to save is equal to 0.5 in the simple Keynesian model, then a 10-unit increase in government spending will cause output to rise by A) 20 B) 10 C) 40 D) 5

B

If the nominal interest rate is above the equilibrium level ________. A) the opportunity cost of holding money is low, and is rising B) purchases of bonds and other assets will cause the interest rate to fall C) issuance of bonds and other assets will cause the supply of real money balances to increase D) all of the above E) none of the above

A

If there is an increase in government spending that is financed by issuing bonds, then A) interest rates should rise which decreases private investment B) interest rates should rise which increases private investment C) interest rates should fall which increases private investment D) interest rates will remain the same unless taxes are reduced as well

D

In Figure 24-1, the economy moves from point 1 to point 2 whenever A) government spending increases. B) investment expenditures unrelated to the interest rate increase. C) the money supply increases. D) either A or B occurs.

C

In the Classical model, an increase in tax on firms that hired labor would (i.e. a tax the firm pays for each worker hired) A) decrease labor supply, increase the real wage, and decrease output B) decrease labor demand and the real wage and increase output C) decrease labor demand, decrease the real wage, and decrease output D) reduce real wages and increase output

A

In the ISLM framework, an expansionary fiscal policy causes aggregate output to ________ and the interest rate to ________, everything else held constant. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

C

In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant. A) up; left B) down; right C) down; left D) up; right

C

In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________, firms will continue to lower production, and output will continue to fall. A) below; negative B) below; positive C) above; positive D) above; negative

C

In the Keynesian money market, velocity is A) negatively related to the interest rate B) independent of the interest rate C) positively related to the interest rate D) None of the above.

B

In the classical model, an increase in saving is assumed to increase A) neither the demand for money nor bonds, leaving interest rates unchanged B) the supply of loanable funds, which decreases interest rates C) the demand for loanable funds, which decreases interest rates D) both the demand for money and loanable funds, which reduces interest rates

B

In the classical model, an increase in the government deficit that is bond financed (i.e. borrowed in the loanable funds market) results in: A) a decrease in the interest rate B) an increase in the quantity of saving C) an increase in consumption D) all of the above

B

In the classical model, the only government policy that can affect real output in the economy is: A) spending policy B) tax policy C) monetary policy D) none of the above.

D

In the classical model, when AD increases due to an increase in money supply, the effect on the equilibrium real wage is: A) The real wage is not affected B) The same as the effect on real output C) The same as the effect on total employment D) All of the above

A

In the classical system, the quantity of money A) determines the price level and, for a given real income, the level of nominal income B) does not affect the equilibrium values of output, employment, and the interest rate C) affects the equilibrium values of output, employment, and the interest rate D) Both a and b E) Both a and c

B

Keynes believed that the U.S. economy was mired in a liquidity trap in the 1930-36 period which meant that A) households were unwilling to hold new money balances. B) monetary policy was ineffective. C) fiscal policy was ineffective. D) all of the above.

A

Keynesians believe that the crowding out effect of government spending is ___________ while the classicals believed it to be ___________. A) small; large B) small; small C) None of the above. D) large; large

A

Let C = 200 + .8(Y-T), planned investment equals 150, and T equals 200. If the equilibrium level of income is 2,000, then the level of government spending needed to make this true is A) 210 B) 200 C) 250 D) 100

D

Macroeconomic equilibrium requires ________. A) equilibrium in neither the goods nor the money market B) equilibrium in the goods market C) equilibrium in the money market D) equilibrium in both the goods and money markets

C

Suppose there is a Fed purchase of bonds and simultaneous tax cut. We know with certainty that this combination of policies must cause A) a reduction in i. B) a reduction in Y. C) an increase in output (Y). D) an increase in the interest rate (i).

E

On the graph above, a possible cause of the rightward shift of the IS curve is an increase in ________. A) taxes B) interest rates C) money supply D) the exchange rate E) none of the above

A

Real output is determined by _________ and the price level by _________ in the Classical model A) aggregate supply; aggregate demand B) aggregate demand; aggregate demand C) aggregate supply; aggregate supply D) none of the above.

D

Refer to Figure 2-1. Point A is A) unattainable with current resources. B) the equilibrium output combination. C) technically efficient. D) inefficient in that not all resources are being used.

C

Refer to Figure 2-7. Assume that in autarky Pakistan consumes 50 cotton and 70 cashews while Indonesia consumes 30 cotton and 80 cashews. What are the potential gains from trade if each nation specializes in the production of the good in which it has a comparative advantage? A) No gains are possible since both countries are producing effieciently. B) 100 pounds Cashews. C) 240 Cotton bolts. D) Both B and C.

C

Refer to Figure 2-7. What is the opportunity cost of producing 1 pound of cashews in Indonesia? A) 3/8 of a bolt of cotton B) 5/8 of a bolt of cotton C) 2 2/3 bolts of cotton D) 120 bolts of cotton

C

Refer to Figure 2-7. Which country has a comparative advantage in the production of cashews? A) They have equal productive abilities. B) Indonesia C) Pakistan D) neither country

A

Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest rate. Given this information, we know that the bond's price must be A) $869.56. B) $1150. C) $850. D) $950. E) none of the above

A

Suppose that Year 1 is the base year. Year 2 real GDP is A) $310. B) $270. C) $390. D) $200.

B

Suppose that there is an increase in technology. The classical model predicts that A) both output and the price level rises B) output rises and the price level falls C) output rises and the price level remains the same D) none of the above

A

Suppose the demand for money is NOT very sensitive to the interest rate. Given this information, we know that A) the LM curve should be relatively steep. B) the IS curve should be relatively flat. C) the IS curve should be relatively steep. D) the LM curve should be relatively flat. E) neither the IS nor the LM curve will be affected.

E

Suppose the economy is currently operating on both the LM curve and the IS curve. Which of the following is true for this economy? A) Financial markets are in equilibrium. B) The quantity supplied of bonds equals the quantity demanded of bonds. C) Production equals demand. D) The money supply equals money demand. E) all of the above

B

Suppose the marginal product of labor is MPN = 200 - 0.5N where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w where w is the real wage. What is the equilibrium quantity of employment? A) 760 B) 380 C) 12 D) 190

B

Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty that A) both output and the interest rate will increase. B) output will increase. C) output will decrease. D) the interest rate will increase. E) the interest rate will decrease.

D

The "crowding out effect" can be characterized as, A) increases in spending, usually G, lead to higher interest rates and thus reduced investment spending. B) G↑→Y↑→Md↑→r↑→I↓ C) the difference between the simple expenditure multiplier and the equilibrium expenditure multiplier. D) All of the above.

A

The CPI overestimates inflation because A) it often ignores the invention of new or higher quality goods B) it always includes discount stores C) it allows substitution from more expensive goods to cheaper goods D) all of the above

C

The IS curve shifts to the left when ________. A) autonomous consumption increases B) autonomous investment increases C) taxes increase D) all of the above E) none of the above

C

The IS curve shows the combinations of output and the real interest rate for which A) the labor market is in equilibrium. B) the financial asset market is in equilibrium. C) the goods market is in equilibrium. D) an increase in output will cause the market-clearing interest rate to be bid up.

D

The ________ demonstrates the roles played by households and firms in the market system. A) business cycle B) theory of comparative advantage C) production possibilities frontier D) circular flow model

C

The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded. A) investment schedule B) consumption function C) IS curve D) LM curve

A

The interest rate will increase as a result of which of the following events? A) an increase in income B) an open market purchase of bonds by the central bank C) a reduction in income D) all of the above E) none of the above

A

The marginal product of capital is the increase in A) output from a one-unit increase in capital. B) labor needed to accompany a one-unit increase in capital. C) output from a one-dollar increase in capital. D) capital needed to produce one more unit of output.

D

The marginal product of labor A) is smaller when the labor supply is relatively smaller. B) is larger when the labor supply is relatively larger. C) is measured by the slope of the production function relating capital to employment. D) decreases as the number of workers already employed increases.

C

The marginal propensity to consume represents A) the level of consumption that occurs if disposable income is zero. B) the ratio of total consumption to disposable income. C) the change in consumption caused by a one-unit change in disposable income. D) total income minus total taxes. E) the change in output caused by a one-unit change in autonomous demand.

C

The money demand curve shifts to the right when A) there is a decrease in the interest rate B) income decreases C) income increases D) there is an increase in the riskiness of interest-bearing assets

A

The money demand curve will shift to the right when which of the following occurs? A) an increase in income B) an increase in the money supply C) a reduction in the interest rate D) all of the above E) none of the above

C

The natural resources used in production are made available in the A) goods and services market. B) government market. C) factor markets. D) product market.

C

The principle of opportunity cost is that A) taking advantage of investment opportunities involves costs. B) in a market economy, taking advantage of profitable opportunities involves some money cost. C) the economic cost of using a factor of production is the alternative use of that factor that is given up. D) the cost of production varies depending on the opportunity for technological application.

C

The production possibilities frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources. A) minimum attainable B) only C) maximum attainable D) equitable

B

The slope of the aggregate production function with capital stock held fixed measures A) the marginal propensity to produce B) the marginal product of labor C) the marginal utility of output D) none of the above.

C

Under the assumption of perfect competition, all resources are paid their marginal oppotunity cost such that firms will earn zero economic profit. Under such conditions any cost increases faced by firms will result in A) a decline in the nominal wage. B) a decline in firms economic profit. C) a proportional increase in output price. D) None of the above.

A

Using the information in situation 20-2, if government increases their spending by $50 and increases taxes by 50, then equilibrium aggregate output will change by A) $50. B) -$50. C) -$100. D) $100.

D

What is the relationship between real and nominal GDP? A) real GDP = nominal GDP - Price level B) nominal GDP = Real GDP/Price level C) real GDP = nominal GDP * Price level D) real GDP = nominal GDP/Price level

C

What two factors should you equate in deciding how many workers to employ? A) The marginal product of labor and the marginal product of capital B) The marginal product of capital and the real wage rate C) The marginal product of labor and the real wage rate D) The marginal product of labor and the real interest rate

B

When people are holding money in excess of their demand for real money balances ________. A) the central bank buys bonds to correct the imbalance B) the nominal interest rate will fall C) they increase their purchases of goods and services D) all of the above E) none of the above

A

When you purchase a new pair of jeans you do so in the A) product market. B) resource market. C) factor market. D) input market.

C

Which of the following best describes the Keynesian liquidity trap? A) A situation in which income is so high that households willingly hold any new money balances supplied by the central bank such that increases in the supply of money do not reduce equilibrium interest rates. B) A situation in which households prefer to hold bonds rather than money such that increases in the supply of money do not reduce equilibrium interest rates. C) A situation in which interest rates are so low that households willingly hold any new money balances supplied by the central bank such that increases in the supply of money do not reduce equilibrium interest rates. D) A situation in which interest rates are so high that households are unwilling to hold any new money balances supplied by the central bank such that increases in the supply of money do not reduce equilibrium interest rates.

D

Which of the following changes shifts the Classical aggregate supply curve to the right? A) A decrease in the demand for labor B) An increase in consumer confidence C) A demographic change that reduces the labor supply D) A decrease in taxes

D

Which of the following is not a characteristic of the classical system? A) real values, not nominal values, matter B) Money wage flexibility C) Price flexibility D) temporary excess demand and supply in labor markets

C

Which of the following is not a factor of production? A) a drill press in a machine shop B) the manager of the local tire shop C) $1,000 in cash D) an acre of farmland

D

Which of the following statements concerning Keynesian ISLM analysis is true? A) Changes in net exports arising from a change in interest rates causes a shift in the IS curve. B) Expansionary fiscal policy will cause the interest rate to fall. C) A fall in the money supply shifts the LM curve to the right. D) For a given change in taxes, the IS curve will shift less than for an equal change in government spending.

C

Which of the following statements most accurately describes the Classical view? A) Fiscal policy is effective at changing nominal aggregate demand but not real aggregate demand. B) Changes in the money supply are important determinants of changes in real output. C) The economy is a complex dynamic system that is naturally self-correcting and requires no intervention by fiscal or monetary authorities. D) All of the above.

B

Year 2 nominal GDP is A) $310. B) $390. C) $200. D) $270.

B

You have just read that the Federal Reserve has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to A) shift up and to the left as the real money supply rises. B) shift down and to the right as the real money supply rises. C) shift up and to the left as the real money supply falls. D) shift down and to the right as the real money supply falls.

C

n the classical model, if money growth and velocity are constant, then A) the price level will be constant B) the price level will rise at the rate of output growth C) the price level will fall at the rate of output growth D) none of the above