Macroeconomics Final Review
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Macroeconomics Final Review

Course Number: ECON 201, Spring 2011

College/University: Maryland

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Macroeconomics Final Exam Review Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. B 1. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply a. increases the price level and the value of money. b. increases the price level and decreases the value of money. c. decreases the price level and...

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Final Macroeconomics Exam Review Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. B 1. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply a. increases the price level and the value of money. b. increases the price level and decreases the value of money. c. decreases the price level and increases the value of money. d. decreases the price level and the value of money. Use the figure below for the following questions. Figure 30-1 A 2. Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2, a. the equilibrium value of money decreases. b. the equilibrium price level decreases. c. the supply of money has decreased. d. the demand for goods and services will decrease. C 3. Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2, the graph shows that a. the demand for goods and services decreases. b. c. the equilibrium price level increases. d. B 4. the economy's ability to produce goods and services increases. the equilibrium value of money increases. Under a fractional reserve banking system, banks a. hold more reserves than deposits. b. c. cause the money supply to fall by lending out reserves. d. A 5. generally lend out a majority of the funds deposited. All of the above are correct. If the reserve ratio is 4 percent, the money multiplier is a. 25 b. c. 4 d. A 6. 20 2 Laura puts money into a piggy bank so she can spend it later. What function of money does this illustrate? a. store of value b. c. unit of account d. D 7. medium of exchange None of the above is correct. Which of the following is not included in M1? a. currency b. c. travelers checks d. C 8. demand deposits credit cards Which of the following statements is not correct? a. The catch-up effect is based on the assumption of diminishing returns to capital. b. Investment in poor countries by citizens of rich countries is one way poor countries can learn new technologies. c. d. C 9. Malthus argued that charity and government aid was an effective way to reduce poverty. Peace and justice are keys to growth. To increase the money supply, the Fed could a. sell government bonds. b. increase the discount rate. c. decrease the reserve requirement. d. None of the above is correct. Consider the exhibit below for the following questions. Figure 33-1 A 10. Refer to Figure 33-1. If the economy starts at C, an increase in the money supply moves the economy a. to A in the long run. b. c. back to C in the long run. d. C 11. to B in the long run. to D in the long run. Refer to Figure 33-1. An increase in the money supply would move the economy from C to a. B in the short run and the long run. b. c. B in the short run and A in the long run. d. C 12. D in the short run and the long run. D in the short run and C in the long run. When Mexico suffered from capital flight in 1994, the U.S. real interest rate a. rose and the real exchange rate of the dollar appreciated. b. rose and the real exchange rate of the dollar depreciated. c. fell and the real exchange rate of the dollar appreciated. d. fell and the real exchange rate of the dollar depreciated. -NCO = total capital going out - the total capital coming in -since NCO is falling then your real exchange rate will fall A 13. If net exports are positive, then a. net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners. b. c. net capital outflow is negative, so foreign assets bought by Americans are greater than American assets bought by foreigners. d. D 14. net capital outflow is positive, so American assets bought by foreigners are greater than foreign assets bought by Americans. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans. When the real exchange rate for the dollar appreciates, U.S. goods become a. less expensive relative to foreign goods, which makes exports rise and imports fall. b. c. more expensive relative to foreign goods, which makes exports rise and imports fall. d. C 15. less expensive relative to foreign goods, which makes exports fall and imports rise. more expensive relative to foreign goods, which makes exports fall and imports rise. If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate a. does not change. b. rises. c. declines d. None of the above is necessarily correct. real and nominal variables -real = nominal - the price effect -if prices are constant and nominal goes down then the real exchange rate went down as well Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. . A 16. Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the right, this would a. b. shift the AD curve to the left. c. create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. d. C 17. represent an action taken by the Federal Reserve. All of the above are correct. Refer to Figure 34-2. What does Y represent on the horizontal axis of the right-hand graph? a. the quantity of money b. c. real output d. D 18. the rate of inflation nominal output Refer to Figure 34-2. What is measured along the horizontal axis of the left-hand graph? a. nominal output b. c. the opportunity cost of holding money d. D 19. real output the quantity of money Refer to Figure 34-2. As we move from one point to another along the money-demand curve MD1, a. the price level is held fixed at P1. b. c. the money supply is changing so as to keep the money market in equilibrium. d. B 20. the interest rate is held fixed at r1. the expected inflation rate is changing so as to keep the real interest rate constant. Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows: a. The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. b. An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this of shift MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. c. A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. d. D 21. An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2. Which of the following would cause stagflation? a. aggregate demand shifts right b. c. aggregate supply shifts right d. C 22. aggregate demand shifts left aggregate supply shifts left The supply of money increases when a. the value of money increases. b. c. the Fed makes open-market purchases. d. A 23. the interest rate increases. None of the above is correct. A budget deficit a. changes the supply of loanable funds. b. c. changes both the supply of and demand for loanable funds. d. C 24. changes the demand for loanable funds. does not influence the supply of or the demand for loanable funds. If a country raises its budget deficit, the net capital outflow a. rises, so the supply of its currency shifts right in the market for foreign currency exchange. b. c. falls, so the supply of its currency shifts left in the market for foreign currency exchange. d. C 25. rises, so the demand for its currency shifts right in the market for foreign currency exchange. falls, so the demand for its currency shifts right in the market for foreign currency exchange. The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the a. velocity concept. b. Fisher effect. c. classical dichotomy. d. C 26. Mankiw effect. The supply of money is determined by a. the price level. b. c. the Federal Reserve System. d. C 27. the Treasury and Congressional Budget Office. the demand for money. A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is a. less than one. Haircuts in Mexico are cheaper than in the U.S. b. c. greater than one. Haircuts in Mexico are cheaper than in the U.S. d. B 28. less than one. Haircuts in Mexico are more expensive than in the U.S. greater than one. Haircuts in Mexico are more expensive than in the U.S. Monetary neutrality implies that an increase in the quantity of money will a. increase employment. b. c. increase the incentive to save. d. C 29. increase the price level. Not increase any of the above. If there are constant returns to scale, the production function can be written as a. xY = 2xAF(L, K, H, N). b. c. Y/L = A F( 1, K/L, H/L, N/L). d. B 30. Y/L = A F(xL, xK, xH, xN). L = AF(Y, K, H, N). While a television news reporter might state that Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent, a more precise account of the Feds action would be as follows: a. Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent. b. Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount. c. Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent. d. B 31. Today the Fed took a step toward contracting aggregate demand, and this was done by lowering the federal funds rate to 5.25 percent. Which of the following is a correct way to measure productivity? a. Divide the number of hours worked by the quantity of output. b. c. Determine how much output is produced in a given time. d. D 32. Divide the quantity of output by the number of hours worked. Determine how much time it takes to produce a unit of output. Economic variables whose values are measured in goods are called a. dichotomous variables. b. c. classical variables. d. C 33. nominal variables. real variables. Which of the following would cause prices and real GDP to rise in the short run? a. Short-run aggregate supply shifts right. b. c. Aggregate demand shifts right. d. C 34. Short-run aggregate supply shifts left. Aggregate demand shifts left. Keynes believed that economies experiencing high unemployment should adopt policies to a. reduce the money supply. b. c. increase aggregate demand. d. D 35. reduce government expenditures. increase aggregate supply. Country A and country B both increase their capital stock by one unit. Output in country A increases by 15 while output in country B increases by 12. Other things the same, diminishing re turns implies that country A is a. richer than Country B. If Country A adds another unit of capital, output will increase by more than 15 units. b. richer than Country B. If Country A adds another unit of capital, output will increase by less than 15 units. c. poorer than Country B. If Country A adds another unit of capital, output will increase by more than 15 units. d. A 36. poorer than Country B. If Country A adds another unit of capital, output will increase by less than 15 units. Velocity is computed as a. (P x Y)/M. b. c. (Y x M)/P. d. D 37. (P x M)/Y. (Y x M)/V. According to the theory of liquidity preference, the money supply a. and money demand are positively related to the interest rate. b. c. is negatively related to the interest rate while money demand is positively related to the interest rate. d. C 38. and money demand are negatively related to the interest rate. is independent of the interest rate, while money demand is negatively related to the interest rate. The classical dichotomy argues that changes in the money supply a. affect both nominal and real variables. b. c. affect nominal variables, but not real variables. d. C 39. affect neither nominal nor real variables. do not affect nominal variables, but do affect real variables. The Feds primary tool to change the money supply is a. changing the discount rate. b. c. conducting open market operations. d. B 40. changing the reserve requirement. redeeming Federal Reserve notes. When the money market is drawn with the value of money on the vertical axis, a. money demand slopes up and money supply is horizontal. b. money demand slopes down and money supply is vertical.

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