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Econ222 sum07 Test Ch12-15

Econ222 sum07 Test Ch12-15 - Econ 222 Test 3(chs 12-15...

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Unformatted text preview: Econ 222 Test 3 (chs 12-15) \ Name , \ 1. The main reason that people hold money—’to buy things——is referred to as the (5:)speculation motive. b. precautionary motive. c. transactions motive. d. profit motive. 2. éggen the interest rate rises, bond values fall. b. rise. c. are unchanged because the interest rate paid on a bond is fixed. d. will either increase or decrease depending on the type of bond. 3. Which of the following events will lead to an increase in the demand for money? (3. An increase in the level of aggregate output . A decrease in the price level c. An increase in the interest rate d. A decreease in the level of aggregate output 4. Refer to Figure 12.5. The money supply curve will shift from M50 to M51 if: a. the Fed increases the reserve requirement b. the Fed increases the discount rate c. George W. Bush and Al Gore leg—wrestle for the presidency (:é> the Fed buys US government securities on the open market % Interest rate,r 00 Ch 200 300 M Money FigUr612.5 ' l0 WW @jfiNA‘R“’V\OV\ advaVIWVW/bi’ m (‘9an MW \1 WV b) \“W‘WM'HMnM ‘\€> ‘W‘AQ/‘A “HAL Price \wfl inwweee, \NVMe “3(3ka O‘AWW‘ y supply curve is a vertical line, changes in the money ect the goods market, and vice—versa. Interest rate 6 100 170 M Money (in billions) Figure 13.4 9. Which of the following actions is an example of expansionary fiscal policy? an increase in defense spending é§37a purchase of government securities in the open market by the Fed c. a reduction in the discount rate d. elimination of certain income tax deductions 10. An increase in the money supply aimed at increasing aggregate output is referred to as a. contractionary fiscal policy. b. expansionary fiscal policy. 6:) expansionary monetary policy. d. contractionary monetary policy. _‘_—_________________A.———————————————_——_i’ 18. 19. Page 5 Which of the following policies will lead to an increase in aggregate demand? a. a decrease in government purchases b. an increase in net taxes <f§2an increase in the money supply . an increase in the demand for money The aggregate supply curve cannot be the sum of the supply curves of all the individual firms in the economy because a. it is unrealistic to believe that costs are constant for individual firms if the overall price level is increasing. b. the output of some firms are the inputs of other firms. c. some firms actually set prices instead of just responding to prices determined in the market. zj>all of the above. O.C§3r the aggregate supply curve to slope upward in the short run, 21. 22. 23. 24. . input price changes must lag behind output price changes. b. input price changes must move ahead of output price changes. c. input prices must adjust immediately to output prices. d. price level changes must be fully anticipated. If the percentage of employees whose wages rise automatically with increases i the price level increases, the aggregate supply curve will become i steeper. 0. flatter. c. horizontal. d. vertical. Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause a. the short— —run aggregate supply curve to shift to the right. 6;).the short— —run aggregate supply curve to shift to the left. c. the short— run aggregate supply curve to become flatter. d,. the short— —run aggregate supply curve to become nearly vertical at all levels of output. * An increase in aggregate demand when the economy is operating at full capacity is likely to result in an increase in the overall price level but no increase in output. b. an increase in output but no increase in the overall price level. c. an increase in both output and the overall price level. d. no increase in either output or the overall price level. The rationale underlying policies to deregulate the economy is that these policies would shift the ' a. short—run aggregate supply curve to the right. short—run aggregate supply curve to the left. gaggregate demand curve to the left. d. aggregate demand curve to the right. Page 7 29. Refer to Figure 15.2. Suppose there is an increase in the fertility rate and this causes some men and women to place a higher value on their time spent in «onmarket activities. This will cause the labor supply curve to shift to the left'of S. b. the labor supply curve to shift to the right of S. c. the labor demand curve to shift from D to D'. d. the labor demand curve to shift from D' to D. W The Labor Market Wage rate 60 80 1‘10 125 , L Units of labor ( in millions) Figure 15.2 30. Refer to Figure 15.2. If the demand for labor falls from D to D', and wages are sticky on the downward side, there will be unemployment of million. a. 20 C? 30 c. 45 d. 50 31. If a household member is not in the labor force, it is because he or she has ecided that the value of his or her time is €22 more valuable in nonmarket activities. b. more valuable in market activities. c. less valuable in nonmarket_activities. d. equally valuable in both market and nonmarket activities. Page 9 39. The natural rate of unemployment is generally thought to be the sum of a. frictional unemployment and cyclical unemployment. b. cyclical unemployment and structural unemployment. ijfrictional unemployment and structural unemployment. d. frictional unemployment and seasonal unemployment. 40. Economists who argue that the AS curve is vertical in the long run at potential GDP also argue that the Phillips curve in the long run is a. horizontal at the natural rate of inflation. b. upward sloping. downward sloping. d. vertical at the natural rate of unemployment. 41. The measured unemployment rate can be pushed below the natural rate, but a. only in the long run, and only if the price level is constant. b} only in the long run, and not without inflation. only in the short run, and not without inflation. d. only in the short run, and only if the price level is constant. 42. Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate? (2 points) a. decrease in the level of aggregate output and a purchase of government securities by the Fed ( an increase in the price level and a decrease in the discount rate « c a decrease in the level of aggregate output and an increase in the , required reserve ratio ‘an increase in the price level and a sale of government securities by the Fed 43. The equilibrium level of output in the United States will fall if (2 points) a. the price level falls. b. the interest rate increases. . the money supply increases. é; the demand for money decreases. 44. If the Fed increases the money supply at the same time the federal government increases government spending, the severity of the crowding— out effect (2 points) a. will not be affected. . will be increased. Will be reduced. /éfi?could either increase or decrease depending on the sensitivity of planned investment to the interest rate. 45. If the United States were to pass legislation that would make it easier for eople to emigrate to the United States, this would cause (2 points) . the short—run aggregate supply curve to shift to the right. . the short-run aggregate supply curve to shift to the left. c. the short—run aggregate supply curve to become flatter. d. the short—run aggregate supply curve to become nearly vertical at all levels of output. 46. (Big One video) Who sometimes takes phone reservations for TWA? a sweatshop workers in Asian countries b children under the age of 15 years c illegal aliens @) men serving prison time 47. (video) Which of the followin is a comparison that Michael Moore made? the U.S. government with the Mafia . layoffs with terrorism ' c. Britney Spears with Bill Gates d. Multinational corporations with your mama Written Portion: please answer in the space provided. 48. Graph the aggregate demand curve. Explain at least two reasons why i is downward sloping. (3 points) “(Yd H l5 dowmwmvd 61°F”, W43; XMWL’EO‘WM will Mow/wee. outpvd‘ (WU) c MP W wvve) 34C M 04m. . AD (/VIOIILC more WWW «For Zach waif «\ OUWH \ mu, _ .+V\M (6 0m invMéfiow Mflahve, % YWOV’Qél/MP bah/VI/(AA VI‘U’. {wa 00M mflV'éj/vfc 0w WI: 49. On the same graph, draw the short run aggregate supply curve (label as "SRAS") and the long run aggregate supply curve (label as "LRAS") and explain their shape aelow. (4 points) ' L M) P- {we , V7 éflAé anwwzoo or W «GHQ '15 Pomfivaix/ :‘mopéd am. it) HM Poeihvorblmhm'vw‘? Fritz \Md 063/24 mam/u ’wafle owe WWW Wilma ib‘vvoflc W +4 '1: mm VIA/Of! V'v'x/"lx-OV‘M’? ‘_ 6mm (“(069 con/me 01‘ 0x3 ,Wmcln wmke We roam-e 9‘01“ ‘4 CIR/i9 “(’6er 0% the WAch hm m LK/ls‘ 50. Are monetary and fiscal policy effective in the short run? Long run? Why? Explain. (2 points ) MOM/WV , WA 43%ng “0ng are @Qmw mm \ Wow 1 V1 wow/Me 14% (Lou/1 1/1th M £9466)? 0‘4 M OWWUA 0* com . ,a. ,r ‘ “ 1%WM‘gA-' M W. (0w WWI (21W? (32%?” “EC 9933'? ijw’fe 4v ‘V’W9L marmoyee am gflwee 117 mm %miliWiMm Ont/8 warm/(.7 Page 8 32. The government raises the marginal income tax rates so that after—tax wages are reduced. This most likely will shift the labor a. supply curve to the right. supply curve to the left. c. demand curve to the right. d. demand curve to the left. 33. The classical view of the labor market is basically consistent with the assumption of . ~ aggregate supply curve. a horizontal (or almost horizontal) (ii: a vertical (or almost vertical) c. an upward-sloping d. a downward—sloping 34. Those who hold the classical view of the labor market are likely to believe that a. monetary, but not fiscal policy will have an effect on output and employment. b. fiscal but not monetary policy will have an effect on output and employment. . c. both monetary and fiscal policy will have an effect on output and . employment. » neither monetary nor fiscal policy will have an effect on output and employment. 35. Cool Air, a major manufacturer of air conditioners, saw the demand for its product drop by 25%. Even though the demand for its product decreased, Cool Air did not cut the wages of its nonunionized workers. This is an example of a. employment—at—will. a relative—wage contract. (a? an explicit contract not to cut wages d. an implicit or social contract not to cut wages. 36. Efficiency wage theory suggeshs that firms may hold wages above the market clearing rate because a. it is required by law that they do so. bwnunspoken agreements between workers and firms are in place. Gi/they believe that the productivity of workers increases with the wage ‘ rate. d. long-term contracts fix wage rates for a period of one to three years. 37. A firm may benefit by paying workers more than the market clearing wage because the higher wages may lead to a. lower worker turnover. b. improVed worker morale. reduced shirking of work. G; all of the above.' 38. The view of the Phillips Curve that prevailed in the 19603 implied that policies that a. lower the unemployment rate will also tend to lower the inflation rate. b. lower the inflation rate will also tend to lower the unemployment rate. . raise the inflation rate will also tend to raise the unemployment rate. §§\lower the unemployment rate will also tend to raise the inflation rate. Page 6 25. The level of aggregate output that can be sustained in the long run without inflation is known as nominal output. real output. C. money output. 69 potential output. 26. If the economy is operating at potential GDP, an increase in the money supply will lead to stagflation . b. a sustained inflation. c. demand-pull inflation. d. cost—push inflation. 27. Inflation that cauSes an increase in the price level and a reduction in output is a. demand— —pull inflation. b. cost—push inflation. c. fully— anticipated inflation. (f:)hyperinflation. increase in unemployment that occurs during recessions and depressions is 286a; cyclical unemployment. seasonal unemployment. c. frictional unemployment. d. structural unemployment. 11. The intended goal of expansionary fiscal and monetary policy is a. an increase in interest rates. b. an increase in the price level. c. the equalization of the distribution of income. C?) an increase in the level of aggregate output. 12. In the absence of an increase in the money supply, an increase in government spending will lead to a reduction in planned investment spending as a result of a. an increase in aggregate output. 6€§ :7 fi #147 b. an increase in the price level. @S>an increase in the interest rate. d. an increase in the tax rate. ‘ 13. Assuming that investment spending depends on the interest rate, increasing the money supply will the interest rate and planned investment. increase; decrease b. increase; increase c. decrease; increase d. decrease; decrease 14. Which of the following sequence of events occurs after a contractionary fiscal policy? ‘ (::)aggregate output decreases, causing money demand to decrease, causing the interest rate to decrease and planned investment to increase b. aggregate output decreases, causing money demand to increase, causing interest rates to increase and planned investment to decrease c. aggregate output decreases, causing planned investment to decrease, causing interest rates to decrease and money demand to decrease d. aggregate output decreases, causing money demand to increase, causing interest rates to increase and planned investment to increase. 15. Which of the following actions is an example of a contractionary fiscal policy? a. an increase in the discount rate a decrease in defense spending c. a sale of government securities in the open market d. a decrease in income tax rate 16. Each point on the aggregate demand curve is a point at which both the market and the market are in equilibrium. @goods; labor _ ‘ . labor; money c labor; bond goods; money 17. A decrease in net taxes at a given price level leads to a. no change in aggregate demand. b. a decrease in aggregate demand. an increase in aggregate demand. d. a decrease in aggregate supply. // PageZ 5. "Tight“ monetary policy means the Fed is taking action to: a. increase the demand for money b. decrease the demand for money c. expand the money supply contract the money supply e. encourage members of the Fed to work out more 6, The interest rate that banks are charged when they borrow reserves from other banks is the (é:>the federal funds rate b. the three-month Treasury bill rate c. the commercial paper rate d. the government bond rate 7. A decrease in the interest rate will cause the a. long—run aggregate supply curve to shift out. r 47 I$ REQ b aggregate expenditure curve to shift down. (:9 aggregate expenditure curve to shift up. d; investment demand curve to shift to the right. ...
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