ECON 2030 MIDTERM 3 Part 2

4. Which of the following would cause stagflation? a. Aggregate demand shifts right. b. Aggregate demand shifts left. c. Aggregate supply shifts right. d. Aggregate supply shifts left

d. Aggregate supply shifts left

Refer to Figure 34-7. If the economy starts at point K, a short-run fall in output would be consistent with a movement to point a. K. b. L. c. M. d. N.

d. N.

Suppose there is an increase in net exports. To stabilize output, the Fed would a. decrease government spending. b. increase money supply. c. increase government spending. d. decrease money supply.

d. decrease money supply.

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is a. 0.2 and the multiplier is 1.25. b. 0.8 and the multiplier is 5. c. 0.2 and the multiplier is 5. d. 0.8 and the multiplier is 8

b. 0.8 and the multiplier is 5.

Which of the following would shift the long-run aggregate supply curve right? a. Both an increase in the capital stock and an increase in the price level b. An increase in the capital stock, but not an increase in the price level c. An increase in the money supply, but not an increase in the capital stock d. Neither an increase in the money supply nor an increase in the capital stock

b. An increase in the capital stock, but not an increase in the price level

In which case can we be sure aggregate demand shifts left overall? a. People want to save more for retirement and the Fed increases the money supply. b. People want to save more for retirement and the Fed decreases the money supply. c. People want to save less for retirement and the Fed increases the money supply. d. People want to save less for retirement and the Fed decreases the money supply

b. People want to save more for retirement and the Fed decreases the money supply.

Refer to Figure 34-2. If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from a. W to X. b. Y to Z. c. X to W. d. Z to Y.

b. Y to Z.

The classical dichotomy and monetary neutrality are represented graphically by a. an upward-sloping long-run aggregate-supply curve. b. a vertical long-run aggregate-supply curve. c. an upward-sloping short-run aggregate-curve. d. a downward-sloping aggregate-demand curve.

b. a vertical long-run aggregate-supply curve.

Suppose there is a tax decrease. To stabilize output, the Federal Reserve could a. decrease government spending. b. decrease the money supply. c. increase government spending. d. increase the money supply.

b. decrease the money supply.

The opportunity cost of holding money a. increases when the interest rate decreases, so people desire to hold less of it. b. decreases when the interest rate decreases, so people desire to hold more of it. c. decreases when the interest rate decreases, so people desire to hold less of it. d. increases when the interest rate decreases, so people desire to hold more of it.

b. decreases when the interest rate decreases, so people desire to hold more of it.

A goal of monetary policy and fiscal policy is to a. offset the shifts in aggregate demand and thereby eliminate unemployment. b. offset the shifts in aggregate demand and thereby stabilize the economy. c. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. d. enhance the shifts in aggregate demand and thereby increase economic growth.

b. offset the shifts in aggregate demand and thereby stabilize the economy.

An increase in the money supply will a. increase interest rates, decreasing investment and aggregate demand. b. reduce interest rates, increasing investment and aggregate demand. c. reduce interest rates, decreasing investment and increasing aggregate demand. d. increase interest rates, increasing investment and aggregate demand.

b. reduce interest rates, increasing investment and aggregate demand.

Refer to Figure 35-4. Which of the following events could explain an increase in the equilibrium interest rate from r1 to r3? a. A increase in the price level b. A increase in the number of firms building new factories and buying new equipment c. An decrease in the price level d. An decrease in the number of firms building new factories and buying new equipment

a. A increase in the price level

Which of the following is an example of crowding out? a. An increase in government spending increases interest rates, causing investment to fall. b. A decrease in private savings increases interest rates, causing investment to fall. c. A decrease in the money supply increases interest rates, causing investment to fall. d. An increase in taxes increases interest rates, causing investment to fall

a. An increase in government spending increases interest rates, causing investment to fall.

Economic expansions in Europe and China would cause the U.S. price level a. and real GDP to rise. b. and real GDP to fall. c. to rise and real GDP to fall. d. to fall and real GDP to rise

a. and real GDP to rise

In the short run, open-market purchases a. increase investment and real GDP, and decrease interest rates. b. increase real GDP and interest rates, and decrease investment. c. increase investment and interest rates, and decrease real GDP. d. decrease investment, interest rates, and real GDP.

a. increase investment and real GDP, and decrease interest rates.

When taxes decrease, interest rates a. increase, making the change in aggregate demand smaller. b. increase, making the change in aggregate demand larger. c. decrease, making the change in aggregate demand smaller. d. decrease, making the change in aggregate demand larger.

a. increase, making the change in aggregate demand smaller.

When the Fed buys bonds the supply of money a. increases and so aggregate demand shifts right. b. decreases and so aggregate demand shifts left. c. decreases and so aggregate demand shifts right. d. increases and so aggregate demand shifts left.

a. increases and so aggregate demand shifts right.

Using the liquidity-preference model, when the Federal Reserve decreases the money supply, a. the equilibrium interest rate increases. b. the aggregate-demand curve shifts to the right. c. the quantity of goods and services demanded is unchanged for a given price level. d. the short-run aggregate-supply curve shifts to the left.

a. the equilibrium interest rate increases.

The Federal Open Market Committee is a. the group at the Federal Reserve that sets monetary policy. b. in charge of tax collection. c. the group that sets the amount of government spending. d. the group that reviews income assistance programs.

a. the group at the Federal Reserve that sets monetary policy.

Liquidity preference theory is most relevant to the a. short run and supposes that the price level adjusts to bring money supply and money demand into balance. b. short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c. long run and supposes that the price level adjusts to bring money supply and money demand into balance. d. long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

b. short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

If the MPC is 3/5 then the multiplier is a. 4, so a $100 increase in government spending increases aggregate demand by $400. b. 1.5, so a $100 increase in government spending increases output by $150. c. 2.5, so a $100 increase in government spending increases aggregate demand by $250. d. 1.67, so a $100 increase in government spending increases output by $166.67.

c. 2.5, so a $100 increase in government spending increases aggregate demand by $250.

If the stock market booms, then a. aggregate demand increases, which the Fed could offset by purchasing bonds. b. aggregate supply increases, which the Fed could offset by selling bonds. c. aggregate demand increases, which the Fed could offset by selling bonds. d. aggregate supply increases, which the Fed could offset by purchasing bonds.

c. aggregate demand increases, which the Fed could offset by selling bonds.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply, could use policy to shift a. aggregate supply to the right. b. aggregate supply to the left. c. aggregate demand to the right. d. aggregate demand to the left

c. aggregate demand to the right.

If taxes a. decrease, then consumption decreases, and aggregate demand shifts rightward. b. decrease, then consumption increases, and aggregate demand shifts leftward. c. increase, then consumption decreases, and aggregate demand shifts leftward. d. increase, then consumption increases, and aggregate demand shifts rightward.

c. increase, then consumption decreases, and aggregate demand shifts leftward.