Review Questions - Macro Final

Review Questions - Macro Final - Exam...

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Unformatted text preview: Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation 1) _______ A) equal to 0 percent. B) less than 7 greater than 7 percent. D) equa l to 7 2 ) The "new product bias" in the consumer price index refers to the idea that 2) ______ _ A ) c pr oic nes sof une m w ego rod ss in scr w ea i se, t an cd hth e tC oPI un ode l re dsti m gat oes oth de sco st w to hco ens nu m t er hs. e consumers prefer new D) goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers. new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers. Table 8-8 Nominal Average Hourly Earnings CPI (1982-1984 = 100) $2.65 32 18.08 207 Year 1965 2008 The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2008. 3) Refer to Table 88. The real average hourly earnings for 1965 in 19821984 dollars equal 3) ______ _ A ) $1.28. B) $6.49. C) $8.28. D) $ 1 Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation 4) ______ _ A ) less than 7 percent. B) equa l to 0 equal to 7 percent. D) great er than 7 5 ) When actual inflation is less than expected inflation, 5) ______ _ A ) borrowers and lenders both gain. B) borr owers gain borrowers and lenders both lose. D) borr owers lose 6 ) Which of the following would increase the unemploy ment rate? 6) ______ _ A ) ae nm pl i oy nm cen rt ein asu sra enc e i pa ny m uen nts a cut in D) unemployment compensation a law making it illegal to work more than 35 hours per week 7) You earned $30,000 in 1980, and your salary rose to $80,000 in 2006. If the CPI rose from 82 to 202 between 1980 and 2006, which of the following is true? 7) ______ _ A ) T f hyo eur sa plar uy rin ccr hea ase sd i be ntw gee n p19 o80 w an ed r20 06 o. The purchasing power of your salary remained constant between 1980 and 2006. D) The purchasing power of your salary fell between 1980 and 2006. Table 8-9 Year 2007 2008 2009 8) Nominal Average Hourly Earnings $10 10 12 CPI 100 105 110 Refer to Table 89. Looking at the table above, real average hourly earnings in 2007 were 8) ______ _ A ) $9 B) $9.52 C) $10 D) $ 1 Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid? 9) ______ _ A ) 16 percent B) 12 percent C) 8 percent D) 6 p 10) Which of the following policies would reduce structural unemploy ment? 10) ______ A ) ase nin the i mi nni cmu r m ewa age a job retraining program D) building an on- line job database that helps workers find jobs 11) The recession of 20072009 had different effects on various sectors of the economy. Which of the following sectors of the U.S. economy had the highest unemploy ment rate in April 2009, topping 15 percent? 11) ______ A ) leisure and hospitality B) finan cial construction D) educ ation and Table 8-5 Year 2007 2008 1 2 ) CPI 207 215 Refer to Table 85. Consider the following values of the consumer price index for 2007 and 2008: The inflation rate for 2008 was equal to 12) ______ A ) 215 percent. B) 21.5 percent. C) 8.0 percent. D) 3 . 13) Full employm ent is not considere d to be zero unemploy ment, because 13) ______ A ) t no hug eh r job es for aeve r ryo ene wh no owa t nts one e. some cyclical unemployment always exists. D) some people do not want a job. 14) A lumberjac k loses his job because timber cutting restriction s were imposed by the EPA to protect the spotted owl habitat. This lumberjac k would be 14) ______ A ) cyclically unemployed. B) fricti onally seasonally unemployed. D) struc turally 1 5 ) The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index. Which of the following is not one of the steps taken to reduce the bias? 15) ______ A ) ul sme i tho nds gto red suce t the asiz t e i of sthe t qua i lity cbia as updating the D) market basket every two years, rather than every 10 years conducting a point-of-purchase survey to track where consumers actually make their purchases Table 8-9 Year 2007 2008 2009 16) Nominal Average Hourly Earnings $10 10 12 CPI 100 105 110 Refer to Table 89. Looking at the table above, real average hourly earnings were equal to ________ in 2008. 16) ______ A ) $9 B) $9.52 C) $10 D) $ 1 17) The economy has gone into a recession. You have majored in computer science and, because of the recession, have difficulty in finding a job. Should you go back to school and get a second major? 17) ______ A ) N ha ove , no im t pac ht eon my r abi elity cto eget sa sjob i or omy nfut ure w inc i om l e. l Yes, the D) recession will ensure that you will never find a job as a programmer. No, the recession will most likely be short-lived and I can get a job after it is over. Table 8-5 Year 2007 2008 18) CPI 207 215 Refer to Table 85. Consider the following values of the consumer price index for 2007 and 2008: The inflation rate for 2008 was equal to 18) ______ A ) 215 percent. B) 21.5 percent. C) 8.0 percent. D) 3 . 19) Suppose the governme nt launches a successful advertisin g campaign that convinces workers with high school degrees to quit their jobs and become full time college students. This would cause 19) ______ A ) t orc he epar tici l pat aion brat oe to r dec rea f se. the number of discouraged workers to increase. D) the 20) unemployment rate to decrease. If the federal governme nt implemen ts programs so that the unemploy ed are more quickly matched with jobs, then 20) ______ A ) t ate hof eune mp nloy ame t nt uwil r l ainc l rea se. r the natural rate of unemployment will not change. D) the natural rate of unemployment will decrease. 21) Which of the following price indices comes closest to measuring the cost of living of the typical household ? 21) ______ A ) household price index B) GDP deflator producer price index D) cons umer price Figure 11-1 2 2 ) Refer to Figure 11-1. Accordin g to the figure above, at what point is aggregate expenditu re greater than GDP? 22) ______ A ) J B) K L D) none of the above 2 3 ) Refer to Figure 11-1. At point L in the figure above, which of the following is true? 23) ______ A ) A ries care t gre uate ar l tha n i pla nnne vd einv nent t ori oes. The economy has achieved macroeconomic equilibrium. D) Aggregate 24) expenditure is greater than GDP. Refer to Figure 11-1. If the economy is at point L, what will happen? 24) ______ A ) I en nabo vve ethe nir t des oire r d i lev eel, sand fir hms adec vrea ese pro r duc i tio sn. Inventories D) have fallen below their desired level, and firms decrease production. Inventories have fallen below their desired level, and firms increase production. Figure 11-2 25) Refer to Figure 11-2. If the U.S. economy is currently at point N, which of the following could cause it to move to point K? 25) ______ A ) G nt oexp vend eitur r es ninc m rea ese. Households D) expect future income to decline. Household wealth rises. Figure 11-3 26) Refer to Figure 11-3. Suppose that investmen t spending increases by $10 million, shifting up the aggregate expenditu re line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP? 26) ______ A ) $9 million B) $10 million C) $90 million D) $ 1 27) Refer to Figure 11-3. Suppose that governme nt spending increases, shifting up the aggregate expenditu re line. GDP increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did governme nt spending change? 27) ______ A ) $10 billion B) $100 billion C) $200 billion D) $ 3 28) The ratio of the increase in ________ to the increase in ________ is called the multiplier . 28) ______ A ) eom qina ul i GD l P; i aut bon r om i ous uexp m end itur ne equilibrium real GDP; autonomous expenditure D) induced 29) expenditure; equilibrium real GDP If an increase in investmen t spending of $50 million results in a $400 million increase in equilibriu m real GDP, then 29) ______ A ) the multiplier is 0.125. B) the multiplier is the multiplier is 8. D) the multiplier is 3 0 ) If an increase in autonomo us consumpti on spending of $10 million results in a $50 million increase in equilibriu m real GDP, then 30) ______ A ) the MPC is 0.5. B) the 0.75. the MPC is 0.8. D) the 3 1 ) A general formula for the multiplier is 31) ______ A ) . B) . C) . D) . 32) The aggregate demand curve illustrates the relationsh ip between ________ and the ________ , holding constant all other factors thataffect aggregate expenditu re. 32) ______ A ) t qu hant eity of ppla r nne i d cinv eest me l nt eexp vend eitur l e ; the price level; quantity of consumption expenditure D) the inflation 33) rate; quantity of planned aggregate expenditure An increase in the price level results in a(n) ________ in household consumpti on spending and a(n) ________ in investmen t spending. 33) ______ A ) increase; increase B) decr ease; decrease; decrease D) incre ase; 3 4 ) What impact does a decrease in the price level in the United States have on net exports and why? 34) ______ A ) A vel inc drea eses cnet r exp eort as sbec eaus e i lo nwe r t pri hces einc rea pse r the i val cue eof the l dol elar. A decrease in the price level reduces net exports because lower prices increase American spending on imports. D) A decrease in 35) the price level reduces net exports because lower prices raise the value of the dollar. An increase in aggregate expenditu re has what result on equilibriu m GDP? 35) ______ A ) E no qt uaff i ect l ed i by ba r dec i rea use m in agg G reg D ate Pexp end i itur se. Equilibrium D) GDP falls. Equilibrium or fall depending on the size of the decrease in aggregate expenditure relative to the initial level of GDP. GDP may rise 36) The basic aggregate demand and aggregate supply curve model helps explain 36) ______ A ) sctu hati oons r in t rea l t GD eP r and m the pri f ce l lev uel. price D) fluctuations in an individual market. long term 37) growth. The ________ shows the relationsh ip between the price level and quantity of real GDP demanded . 37) ______ A ) consumer price index B) aggr egate 45-degree line D) aggr egate 3 8 ) Which of the following best describes the "wealth effect"? 38) ______ A ) W l hfall es, nthe no t mi hnal eval ue pof r ho i use chol ed we l alt eh vrise es. When the price level falls, the nominal value of household wealth falls. D) When the price level falls, the real value of household wealth rises. 39) The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off 39) ______ A ) gpen odin vg eand r un npla m nne ed ninv t est me snt. investment and consumption spending. D) net exports. 40) When the price level in the United States falls relative to the price level of other countries, ________ will fall, ________ will rise, and ________ will rise. 40) ______ A ) net exports; exports; imports B) expo rts; imports; net exports; imports; exports D) impo rts; exports; 4 1 ) Which of the following is one explanatio n as to why the aggregate demand curve slopes downwar d? 41) ______ A ) D ce elev cel r rel eati ave sto ethe spri ce i lev nel in t oth her ecou ntri U es . lo Swe . r net pexp r ort i s. Decreases in the price level raise the interest rate and increase consumption spending. D) Decreases in the price level raise real wealth and increase consumption spending. 42) An increase in the price level will 42) ______ A ) m up oalo vng ea stat t ion hary eagg reg eate cde oma nnd ocur m ve. y move the D) economy down along a stationary aggregate demand curve. shift the 43) aggregate demand curve to the left. Deflation will 43) ______ A ) de eagg creg r ate ede ama snd. increase the D) quantity of real GDP demanded. decrease the 44) quantity of real GDP demanded. The recession of 20072009 made many consumer s pessimisti c about their future incomes. How does this increased pessimis m affect the aggregate demand curve? 44) ______ A ) T t hthe i agg sreg ate w de i ma l nd l cur ve sto hthe i rig f ht. This will shift the aggregate demand curve to the left. D) This will move the economy up along a stationary aggregate demand curve. 45) Spending on the war in Iraq is essentiall y categorize d as governme nt purchases . How do increases in spending on the war in Iraq affect the aggregate demand curve? 45) ______ A ) T eco hno emy yup alo w ng i a l stat l ion ary m agg oreg vate ede ma t nd hcur eve. They will shift the aggregate demand curve to the left. D) They will move the economy down along a stationary aggregate demand curve. 46) Which of the following will shift the aggregate demand curve to the right, ceteris paribus? 46) ______ A ) an increase in net exports B) a decrease in firms a decrease in disposable income D) an 4 7 ) increase in Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from the United States to Sweden and ________ U.S. aggregate demand. 47) ______ A ) decrease; increase B) incre ase; increase increase; decrease D) decr ease; 4 8 ) How do lower taxes affect aggregate demand? 48) ______ A ) t cor hpor eate yinv est i me nnt cand r agg ereg aate sde ema nd. They reduce D) disposable income, consumption, and aggregate demand. They increase aggregate supply and thus increase aggregate demand as well. Figure 12-1 49) Refer to Figure 12-1. Ceteris paribus, an increase in the price level would be represente d by a movemen t from 49) ______ A ) AD1 to AD2. B) AD2 to AD1. point A to point B. D) point 5 0 ) Refer to Figure 12-1. Ceteris paribus, an increase in interest rates would be represente d by a movemen t from 50) ______ A ) AD1 to AD2. B) AD2 to AD1. point A to point B. D) point 5 1 ) Refer to Figure 12-1. Ceteris paribus, an increase in personal income taxes would be represente d by a movemen t from 51) ______ A ) AD1 to AD2. B) AD2 to AD1. point A to point B. D) point 5 2 ) The level of aggregate supply in the longrun is not affected by 52) ______ A ) changes in the price level. B) chan ges in the changes in technology. D) chan ges in the 5 3 ) The level of aggregate supply in the longrun is not affected by 53) ______ A ) changes in technology. B) chan ges in the changes in the number of workers. D) chan ges in the 5 4 ) Potential GDP refers to the level of 54) ______ A ) nominal GDP in the short run. B) real GDP in the nominal GDP in the long run. D) real GDP in the 5 5 ) The longrun aggregate supply curve 55) ______ A ) has a steep but positive slope. B) is horizontal. has a negative slope. D) is 5 6 ) vertical. If stricter immigrati on laws are imposed and many foreign workers in the United States are forced to go back to their home countries, 56) ______ A ) t gre hgat ee sup l ply ocur nve gwil - l r shi uft nto the aleft g. we will move up along the long-run aggregate supply curve. D) the long-run 57) aggregate supply curve will shift to the right. What is potential GDP? 57) ______ A ) I vel t of rea i l sGD P t in hthe esho rt l run e. It is the level of GDP at which inflation is constant. D) It is the 58) difference between current GDP and maximum GDP. Fullemploym ent GDP is also known as 58) ______ A ) realized GDP. B) bala nced-budget politicoeconomic GDP. D) pote ntial GDP. 5 9 ) The longrun aggregate supply curve shows the relationsh ip between the ________ and ________ . 59) ______ A ) nst orat m e; i qua nntit ay l of rea i l nGD t P esup r pli eed price level; D) quantity of real GDP supplied inflation rate; 60) quantity of real GDP demanded On the long-run aggregate supply curve, 60) ______ A ) ace lev del ehas cno r eff eect aon sthe eagg reg i ate nqua ntit t y hof eGD P psup r pli i ed. a decrease in D) the price level decreases the level of potential GDP. a decrease in 61) the price level decreases the aggregate quantity of GDP supplied. Changes in the price level 61) ______ A ) dhe olev el nof oagg t reg ate asup f ply f in ethe clon t g run t . increase the D) level of aggregate supply in the long run. increase the 62) level of aggregate supply in the long run only at very high levels of output. The longrun aggregate supply curve will shift to the right if the economy 62) ______ A ) experiences technological change. B) has a decrease in net exports decrease. D) expe riences high 6 3 ) Suppose a developin g country receives more machiner y and capital equipmen t as foreign entrepren eurs increase the amount of investmen t in the economy. As a result, 63) ______ A ) t m hove eup alo eng cthe olon ngorun m agg yreg ate w sup i ply l cur l ve. the long-run D) aggregate supply curve will shift to the right. the economy 64) will move down along the long-run aggregate supply curve. Which aggregate supply curve has a positive slope? 64) ______ A ) neither long run nor short run B) both long run and long run only D) short run only 6 5 ) The shortrun aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly. 65) ______ A ) positive; inputs; final goods and services B) infin ite; inputs; services infinite; final goods and services; inputs D) posit ive; final 6 6 ) inputs All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except 66) ______ A ) usuc nces i sfu ol in npus shin g aup r wa eges . contracts make prices and wages "sticky." D) firms are often slow to adjust wages. 67) An increase in the price level will 67) ______ A ) srthrun i agg f reg t ate sup t ply hcur eve to sthe hrig oht. move the D) economy upalong a stationary short-run aggregate supply curve. move the 68) economy down along a stationary short-run aggregate supply curve. If, due to the recession, foreign workers begin to leave the United States to search for temporary work in their home countries until the recession has ended, this will 68) ______ A ) m 's oeco vno emy up t alo hng ea stat hion oary m sho ert run cagg oreg uate nsup t ply r cur yve. shift the short- run aggregate supply curve of the home country to the right. D) shift the short 69) run aggregate supply curve of the home country to the left. When the price level rises from 110 to 115, the aggregate level of GDP supplied rises from $80 billion to $120 billion. This ________ relationsh ip represents the ________ relationsh ip between the quantity of real GDP firms are willing to supply and the price level. 69) ______ A ) positive; shortrun B) nega tive; short- positive; longrun D) nega tive; long 7 0 ) If fullemploym ent GDP is equal to $4.2 trillion, what does the longrun aggregate supply curve look like? 70) ______ A ) I lin t e at a i lev sel of aGD P vabo eve r $4. t 2 i trill cion a. l It is a horizontal line at $4.2 trillion of GDP. D) It is a vertical line at $4.2 trillion of GDP. Figure 12-2 71) Refer to Figure 12-2. Ceteris paribus, an increase in the labor force would be represente d by a movemen t from 71) ______ A ) SRAS1 to SRAS2. B) SRA S2 to point A to point B. D) point 7 2 ) Refer to Figure 12-2. Ceteris paribus, a decrease in the capital stock would be represente d by a movemen t from 72) ______ A ) SRAS1 to SRAS2. B) SRA S2 to point A to point B. D) point 7 3 ) Refer to Figure 12-2. Ceteris paribus, an increase in productivi ty would be represente d by a movemen t from 73) ______ A ) SRAS1 to SRAS2. B) SRA S2 to point A to point B. D) point 7 4 ) Refer to Figure 12-2. Ceteris paribus, an increase in the price level would be represente d by a movemen t from 74) ______ A ) SRAS1 to SRAS2. B) SRA S2 to point A to point B. D) point 7 5 ) Long-run macroeco nomic equilibriu m occurs when 75) ______ A ) sd t fric r tio unal cune t mp uloy r me ant l equ als azer no. output is above potential GDP. D) aggregate 76) demand equals short-run aggregate supply. Suppose the economy is at full employm ent and firms become more optimistic about the future profitabili ty of new investmen t. Which of the following will happen in the short run? 76) ______ A ) T de hma end cur ave gwil gl r shi eft gto athe t left e. Output will D) decline. Prices will 77) decline. Suppose the economy is at a short-run equilibriu m GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanis m adjusting the economy back to potential GDP? 77) ______ A ) P wi r ll i inc crea ese. s Unemployment will rise. D) Output will decrease. Figure 12-3 78) Refer to Figure 12-3. Which of the points in the above graph are possible long-run equilibria ? 78) ______ A ) B and D B) A and C C) A and D D) A 79) Stagflatio n occurs when 79) ______ A ) inflation rises and GDP rises. B) inflat ion falls and inflation falls and GDP falls. D) inflat ion rises and 8 0 ) After ________. Barack Obama became president, he proposed a package of spending increases and tax reductions intended to increase aggregate demand. This package was designed to bring the economy back to macroeco nomic equilibriu m in the ________ . Most economist s agree that, without any governme nt policy actions, an automatic mechanis m will bring the economy to macroeco nomic equilibriu m in the 80) ______ A ) short run; short run B) long run; long short run; long run D) long run; short 8 1 ) After an unexpecte d ________ in the price of oil, the long-run adjustmen t decreases the price level and ________ the unemploy ment rate as they return to their original levels. 81) ______ A ) decrease; decreases B) incre ase; decrease; increases D) incre ase; 8 2 ) In economic s, money is defined as 82) ______ A ) t sal hary e, int t ere ost, t and aren l tal inc aom m e oear uned ndur t ing a oyea f r. the total value of one's assets in current prices. D) the total value of one's assets minus the total value of one's debts, in current prices. 83) Which of the following is one of the most important benefits of money in an economy? 83) ______ A ) M for othe nacc eum yula tio an l of l we oalt w h. s Money D) encourages people to produce all of their own goods (self-sufficiency) and therefore increases economic stability. Money makes 84) exchange easier, leading to more specialization and higher productivity. Which of the following assets is most liquid? 84) ______ A ) bond B) money C) stock D) s a 85) Fiat money has 85) ______ A ) ac val gue r tha et is aind t epe nde i nt nof t its r use i as nmo sney i . value, because it can be redeemed for gold by the central bank. D) little to no 86) intrinsic value and is authorized by the central bank or governmental body. The most liquid measure of money supply is 86) ______ A ) M0. B) M1. C) M2. D) M 3 87) The M2 measure of the money supply equals 87) ______ A ) M ou 1nt bal panc l es uplu ss sm salladen vom i ina ntio gn stim e adep cosit cs. savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares. D) M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares. 88) If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________ . 88) ______ A ) i ase n; cdec r rea ese increase; not D) change not change; E) decrease not change; 89) increase If credit card balances rise in the economy, then M1 will ________ and M2 will ________ . 89) ______ A ) i ase n; cdec r rea ese increase; D) increase decrease; E) increase not change; not change SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 90) Suppose you withdraw $1,000 from your savings account and put it under your mattress. Briefly explain how this will affect M1 and M2. 90) ______ _______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 91 ) Bank reserves include 91) ______ A ) ceck uing sacc t ou onts m and evau r lt cas ch. h vault cash and deposits with the Federal Reserve. D) deposits with the Federal Reserve and holdings of securities. E) vault cash and loans to bank customers. Scenario 13-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. 92) Refer to Scenario 13-2. As a result of Kristy's deposit, Bank A's reserves immediat ely increase by 92) ______ A ) $2,000. B) $8,000. C) $10,000. D) $ 5 93) If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to 93) ______ A ) $100. B) $1,000. C) $10,000. D) $ 1 94) Suppose Steve Jobs deposits $20 million into his checking account at Wells Fargo Bank. If the required reserve ratio is 10 percent, what is the maximum change in money supply? 94) ______ A ) - 0 $mil 2lio 0n $2 million D) $180 million E) $200 million 95) Banks keep ________ of checking deposits as reserves because on a typical day withdraw als ________ deposits. 95) ______ A ) l 10 e0% s; sare abo t ut hthe asa nme as more than D) 100%; are much greater than exactly 100%; are about the same as E) exactly 100%; are much greater than 96) In response to the destructiv e bank panics of the Great Depressio n, future bank panics are designed to be prevented by 96) ______ A ) e fra scti t ona al bres l erv i e ssys hte i m nof gban kin ag. the Federal D) Reserve System acting as a lender of last resort. the E) establishment of the Federal Deposit Insurance Corporation. increasing the 97) required reserve ratio to 100%. Open market operations refer to the purchase or sale of ________ to control the money supply. 97) ______ A ) cnds oand r sto pcks oby r the aFe t der eal Re bser ove U.S. Treasury securities by the Federal Reserve D) corporate bonds and stocks by the U.S. Treasury 98) To increase the money supply, the Federal Reserve could 98) ______ A ) l tra onsf w er epay r me nts. raise the D) discount rate. conduct an open market purchase of Treasury securities. E) decrease 99) income taxes. Monetary policy refers to the actions the 99) ______ A ) Pto r ma enag se i the dmo eney nsup t ply and aint nere dst rat C es oto npur gsue r the eir seco sno mi t c aobj kecti eves . Federal Reserve takes to manage government spending and taxes to pursue its economic objectives. D) Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. 100) The Federal Reserve System's four monetary policy goals are 100) _____ A ) l failu ores, w high rese r rve aratio t s, epric e ostabi f lity, and becon aomi nc kgro wth. price stability, high employment, economic growth, and stability of financial markets and institutions. D) price stability, low government budget deficits, low current account deficits, and low rate of bank failures. 101) When the Federal Reserve System was establishe d in 1913, its main policy goal was 101) _____ A ) preventing bank panics. B) keep ing promoting price stability. D) enco uraging 1 0 2 ) growth. The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governor s in 1979 was 102) _____ A ) i sing nemp cloy r men et. a a low current D) account deficit. increasing E) economic growth. fighting 103) inflation. During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to 103) _____ A ) r e the erate dof uinfla ction. reduce the D) current account deficit. reduce E) unemployment. reassure 104) financial markets and promote financial stability. To decrease the money supply, the Federal Reserve could 104) _____ A ) l he orequ w ired erese r rve ratio t . raise transfer payments. D) raise income E) taxes. conduct an open market sale of Treasury securities. 105) The Federal Open Market Committe e consists of the seven members of the ________ , the president of the Federal Reserve Bank of New York, and ________ . 105) _____ A ) FBoa erd of dGov eerno r rs; afour l me mbe R rs of ethe s Cou encil r of vEco enom ' ic s Adv isors Council of D) Economic Advisors; four members of the U.S. Banking Committee Federal 106) Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks The three main monetary policy tools used by the Federal Reserve to manage the money supply are 106) _____ A ) o, the pexch eange nrate of m the adoll r ar kagai enst t forei gn ocurr penci ees, r and agove t rnm i ent opurc nhase s s. interest rates, tax rates, and government spending. D) tax rates, 107) government purchases, and government transfer payments. The main tool that the Federal Reserve uses to conduct monetary policy is 107) _____ A ) s g erese t rve t requ i irem nents. check clearing. D) open market E) operations. acting as the 108) lender of last resort. The purchase of Treasury securities by the Federal Reserve will, in general, 108) _____ A ) i he nquan ctity r of erese arves s held eby bank t s. not change the quantity of reserves held by banks. D) decrease the 109) quantity of reserves held by banks. The sale of Treasury securities by the Federal Reserve will, in general, 109) _____ A ) n the oquan t tity of crese hrves aheld nby gbank es. decrease the D) quantity of reserves held by banks. increase the quantity of reserves held by banks. Scenario 13-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. 110) Refer to Scenario 13-2. As a result of Kristy's deposit, Bank A's required reserves increase by 110) _____ A ) $2,000. B) $8,000. C) $10,000. D) $ 5 111 Refer to Scenario 13-2. As a result of Kristy's deposit, Bank A's excess reserves increase by 111) _____ A ) $2,000. B) $8,000. C) $10,000. D) $ 5 112 Refer to Scenario 13-2. As a result of Kristy's deposit, Bank A can make a maximum loan of 112) _____ A ) $2,000. B) $8,000. C) $10,000. D) $ 5 113 Refer to Scenario 13-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of 113) _____ A ) $8,000. B) $10,000. C) $50,000. D) $ 1 114 The required reserves of a bank equal its ________ the required reserve ratio. 114) _____ A ) deposits divided by B) loans multiplied loans divided by D) depo sits SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 1 1 5 ) Suppose you withdraw $1,000 from your savings account and put it in your checking account. Briefly explain how this will affect M1 and M2. 115) ______ ______ 11 6) Suppose you withdraw $1,000 in cash from your checking account. Draw a Taccount to show the effect of this transactio n on your bank's balance sheet. 116) ______ ______ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 11 7) The major assets on a bank's balance sheet are its 117) _____ A ) r chec eking s and esavi r ngs vacco eunt s depo , sits. checking and D) savings account deposits. reserves, loans, and holdings of securities. E) reserves, loans, and checking account deposits. 118) The M1 measure of the money supply equals 118) _____ A ) cing uacco r unt r bala ences nplus ctrav yeler' s pchec l ks uplus s savi ngs cacco hunt ebala cnces k. currency plus checking account balances plus traveler's checks. D) paper money 119) plus coins in circulation. Economie s where goods and services are traded directly for other goods and services are called ________ economie s. 119) _____ A ) seigniorage B) direct C) barter D) tr a 120 The major shortcomi ng of a barter economy is 120) _____ A ) t y hlose a s t valu e m fro om ninfla etion. that goods and services are not traded. D) the requirement of a double coincidence of wants. 121) Commodi ty money 121) _____ A ) h ind aepen s dent of vits ause l as umon eey. has little to no value independent of its use as money. D) is backed by a valuable commodity such as gold. 122) Silver is an example of a 122) _____ A ) fiat money. B) repre sentative commodity money. D) barte r money. Figure 12-3 1 2 3 ) Refer to Figure 12-3. Which of the points in the above graph are possible short-run equilibria but not long-run equilibria ? Assume that Y1 represents potential GDP. 123) _____ A ) B and D B) A and B C) C and D D) A 124 Refer to Figure 12-3. Suppose the economy is at point A. If investmen t spending increases in the economy, where will the eventual long-run equilibriu m be? 124) _____ A ) A B) B C) C D) D 125 Refer to Figure 12-3. Suppose the economy is at point C. If governme nt spending decreases in the economy, where will the eventual long-run equilibriu m be? 125) _____ A ) A B) B C) C D) D 126 Refer to Figure 12-3. Suppose the economy is at point A. If the economy experienc es a supply shock, where will the eventual short-run equilibriu m be? 126) _____ A ) A B) B C) C D) D 127 An increase in aggregate demand results in a(n) ________ in the ________ . 127) _____ A ) recession; long run B) reces sion; short expansion; short run D) expa nsion; long 1 2 8 ) Suppose there has been an increase in investmen t. As a result, real GDP will ________ in the short run, and ________ in the long run. 128) _____ A ) increase; increases further B) incre ase; initial value decrease; increase to its initial level D) decr ease; 1 2 9 ) A decrease in investmen t causes the price level to ________ in the short run and ________ in the long run. 129) _____ A ) decrease; increase B) incre ase; increase decrease; decrease further D) incre ase; 1 3 0 ) An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run. 130) _____ A ) the price level; real GDP B) real GDP; real real GDP; the price level D) the price level; 1 3 1 ) Most recessions in the United States since World War II have begun with 131) _____ A ) a substantial number of bank failures. B) a decline in construction. a rapid increase in the price level. D) a 1 3 2 ) stock When the aggregate demand curve and the shortrun aggregate supply curve intersect, 132) _____ A ) t rega hte esupp ly l curv oe nmust galso - inter r sect uat nthe sam ae gpoin gt. inflation must be increasing. D) the economy is in short-run macroeconomic equilibrium. 133) Interest rates in the economy have fallen. How will this affect aggregate demand and equilibriu m in the short run? 133) _____ A ) A fall, gthe gequi r libri eum gpric ae t level ewill fall, dand ethe m equi alibri num dlevel of w GD i P l will l fall. Aggregate D) demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall. Aggregate 134) demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. The Federal Reserve's two main ________ are the money supply and the interest rate. 134) _____ A ) monetary policy targets B) fisca l policy policy tools D) fisca l tools 1 3 5 ) The money demand curve has a 135) _____ A ) nse ean gincr aease t in i the vinter eest rate s decr l ease os the pquan etity of bmon eey cdem aande ud. positive slope because an increase in the price level increases the quantity of money demanded. D) positive slope 136) because an increase in the interest rate increases the quantity of money demanded. An increase in the price level causes 136) _____ A ) t de hman ed curv m e to oshift nto ethe yleft. a movement up along the money demand curve. D) the money 137) demand curve to shift to the right. Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibriu m interest rate to 137) _____ A ) increase. B) not change. decrease. D) incre ase if the 1 3 8 ) recession. Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibriu m interest rate to 138) _____ A ) increase, then decrease. B) decr ease. not change. D) incre ase. 1 3 9 ) When the Federal Reserve decreases the money supply, at the previous equilibriu m interest rate household s and firms will now want to 139) _____ A ) neither buy nor sell Treasury bills. B) hold less money. buy Treasury bills. D) sell Treasury Figure 14-2 1 4 0 ) Refer to Figure 14-2. In the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent household s and firms will 140) _____ A ) want to hold less money. B) neith er buy nor buy Treasury bills. D) sell Treasury Figure 14-3 1 4 1 ) Refer to Figure 14-3. In the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent household s and firms will 141) _____ A ) sell Treasury bills. B) neith er buy nor buy Treasury bills. D) want to hold 1 4 2 ) For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the 142) _____ A ) Treasury bill rate. B) feder al funds prime rate. D) disco unt rate. 1 4 3 ) Which of the following would cause the money demand curve to shift to the left? 143) _____ A ) areas e in dreal eGD cP an increase in the price level D) an open market purchase of Treasury securities by the Federal Reserve 144) An increase in the interest rate 144) _____ A ) i the nopp cortu r nity ecost aof s hold eing s mon ey. increases the D) percentage yield of holding money. decreases the 145) percentage yield of holding money. The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect 145) _____ A ) real interest rates. B) forei gn exchange tax rates. D) nomi nal interest 1 4 6 ) From an initial long-run macroeco nomic equilibriu m, if the Federal Reserve anticipate d that next year aggregate demand would grow significan tly slower than longrun aggregate supply, then the Federal Reserve would most likely 146) _____ A ) increase income tax rates. B) incre ase interest decrease interest rates. D) decr ease income Figure 14-4 1 4 7 ) Refer to Figure 14-4. In the figure above, if the economy is at point A, the appropriat e monetary policy by the Federal Reserve would be to 147) _____ A ) lower interest rates. B) raise income lower income taxes. D) raise interest Figure 14-5 1 4 8 ) Refer to Figure 14-5. Suppose the economy is in a recession and the Fed pursues an expansion ary monetary policy. Using the static ADAS model in the figure above, this would be depicted as a movemen t from 148) _____ A ) C to D. B) C to B. C) B to C. D) A to B. E) A Refer to Figure 14-5. Suppose the Fed lowers its target for the federal funds rate. Using the static ADAS model in the figure above, this situation would be depicted as a movemen t from 149) _____ A ) A to B. B) C to D. C) C to B. D) E to A. E) B Figure 146 Refer to Figure 14-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely 150) _____ A ) increase interest rates. B) decr ease the decrease interest rates. D) not change 1 5 1 ) Refer to Figure 14-6. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B 151) _____ A ) f oper i atin r g m abov s e their anor r mal ecapa city. incomes and D) profits are rising. the E) unemployment rate is very, very low. there is pressure on wages and prices to rise. Figure 14-5 152) Refer to Figure 14-5. Suppose the economy is in short-run equilibriu m above potential GDP, the unemploy ment rate is very low, and wages and prices are rising. Using the static ADAS model in the figure above, the correct Fed policy for this situation would be depicted as a movemen t from 152) _____ A ) B to C. B) C to B. C) C to D. D) A to E. E) A Table 14-1 Year 2014 2015 Refer to Table 141. The hypotheti cal informati on in the table shows what the values for real GDP and the price level will be in 2015 if the Fed does not use monetary policy. Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2015? 153) _____ A ) Tould hpurs eue cont Fracti eonar dy poli s cy. h The Fed should lower the target for the federal funds rate. D) The trading 154) desk should sell Treasury securities. Which of the following would be classified as fiscal policy? 154) _____ A ) A nme nt s cuts t taxe as to t help ethe econ gomy oof vthe estate r . The federal D) government passes tax cuts to encourage firms to reduce air pollution. The Federal E) Reserve cuts interest rates to stimulate the economy. The federal 155) government cuts taxes to stimulate the economy. The increase in the amount that the governme nt collects in taxes when the economy expands and the decrease in the amount that the governme nt collects in taxes when the economy goes into a recession is an example of 155) _____ A ) automatic stabilizers. B) auto matic discretionary monetary policy. D) discr etionary 1 5 6 ) The largest and fastestgrowing category of federal governme nt expenditu res is 156) _____ A ) grants to state and local governments. B) inter est on the transfer payments. D) natio nal park 1 5 7 ) An increase in governme nt purchases will increase aggregate demand because 157) _____ A ) t e in hthe einter est drate ewill cincr l ease i dem nand. the decline in the price level will increase demand. D) government 158) expenditures are a component of aggregate demand. Expansio nary fiscal policy involves 158) _____ A ) i taxe ns or cdecr r easi eng agove s rnm i ent npurc ghase s. increasing D) government purchases or decreasing taxes. decreasing the money supply and increasing interest rates. Figure 15-1 159) Refer to Figure 15-1. An increase in taxes would be depicted as a movemen t from ________ , using the static ADAS model in the figure above. 159) _____ A ) C to D B) B to A C) B to C D) E to B E) A Refer to Figure 15-1. Suppose the economy is in short-run equilibriu m below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibriu m. Using the static AD-AS model in the figure above, this would be depicted as a movemen t from 160) _____ A ) B to A. B) A to E. C) B to C. D) C to B. E) A Refer to Figure 15-1. Suppose the economy is in short-run equilibriu m below potential GDP and no fiscal or monetary policy is pursued. Using the static ADAS model in the figure above, this would be depicted as a movemen t from 161) _____ A ) A to B. B) B to C. C) B to A. D) A to E. E) C If real GDP exceeded potential real GDP and inflation was increasing , which of the following would be an appropriat e fiscal policy? 162) _____ A ) aease nin gove i rnm nent cspen r ding an increase in taxes D) an increase in oil prices Figure 15-3 163) Refer to Figure 15-3. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely 163) _____ A ) r inte arest i rates s . e increase D) government spending. increase taxes. E) increase oil 164) prices. The multiplier effect refers to the series of 164) _____ A ) an ucons t ump otion nspen oding m that oresu ult s fro m i an niniti cal r incr eease ain s indu eced s expe ndit i ures. induced D) increases in investment spending that result from an initial increase in autonomous expenditures. induced 165) increases in consumption spending that result from an initial increase in autonomous expenditures. A change in consumpti on spending caused by income changes is ________ change in spending, and a change in governme nt spending that occurs to improve roads and bridges is ________ change in spending. 165) _____ A ) an expansionary; a contractionary B) a contractiona an induced; an autonomous D) an autonomous 1 6 6 ) Which of the following would increase the size of the governme nt purchases multiplier ? 166) _____ A ) acrea nse in the i tax nrate a decrease in D) the amount saved by households from an increase in income an increase in 167) the quantity of imports purchased by households from an increase in income If the tax multiplier is -1.5 and a $200 billion tax increase is implemen ted, what is the change in GDP, holding everythin g else constant? (Assume the price level stays constant.) 167) _____ A ) abilli on $decr 3ease 0in 0GD P a $300 billion increase in GDP D) a $30 billion E) increase in GDP a $133.33 168) billion increase in GDP Suppose the governme nt spending multiplier is 2. The federal governme nt cuts spending by $40 billion. What is the change in GDP if the price level is not held constant? 168) _____ A ) aease nof less i than n$80 cbilli r on an increase D) equal to $80 billion a decrease of less than $80 billion E) a decrease of 169) more than $80 billion Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibriu m GDP? 169) _____ A ) R uilib erium aGD l P will erise. q Real D) equilibrium GDP will initially rise, but then fall below its previous equilibrium value. There will be no change in real equilibrium GDP. 170) An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and governme nt spending on transfer payments ________ . 170) _____ A ) decrease; fall; rises B) decr ease; rise; increase; fall; rises D) incre ase; rise; 1 7 1 ) Which of the following is a reason why we should consider the federal national debt a problem? 171) _____ A ) Tgove hrnm eent is in f dang eer of ddefa eultin r g on aits l debt . If the debt was incurred to finance research and development, crowding out will occur. D) If the debt was incurred to finance improvements in infrastructure, crowding out will occur. 172) Which of the following best describes supplyside economic s? 172) _____ A ) Lduct aivity baffe octs r aggr egat pe r supp oly. Education D) affects labor productivity which affects aggregate supply. Tax rates, 173) particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply. Which of the following is considere d a weakness of the flat tax? 173) _____ A ) Sinve astme vnt i wou nld gdecli ne aunde nr the dflat tax. Tax D) compliance would decrease if the tax was implemented. The complexity of the tax system would increase under the flat tax. 174) Accordin g to the short-run Phillips curve, the unemploy ment rate and the inflation rate are 174) _____ A ) unaffected by monetary policy. B) posit ively unrelated. D) nega tively Figure 16-1 1 7 5 ) Refer to Figure 16-1. What should the Federal Reserve do if it wants to move from point A to point B in the shortrun Phillips curve depicted in the figure above? 175) _____ A ) i se nthe cmon r ey esupp aly lower taxes D) buy treasury E) bills lower the 176) discount rate Refer to Figure 16-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractio nary monetary policy, where would the economy end up in the short run? 176) _____ A ) I ld t rem ain w at opoin ut A. point C D) point D E) point E 177) Refer to Figure 16-1. Suppose that the economy is currently at point A, and the unemploy ment rate at A is the natural rate. What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run? 177) _____ A ) S trea esury l bills l . Buy treasury D) bills. Decrease the E) money supply. No policy will move the economy to point B in the long run. 178) Refer to Figure 16-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemploy ment rate at A is the natural rate. If the economy was to move to point C, which of the following must be true? 178) _____ A ) Tcted hcont eracti onar Fy epoli dcy to ccaus oe the nmov de. u Equilibrium D) GDP at point C must be above potential GDP. The economy is producing a level of GDP equal to potential GDP. E) The Fed sold 179) treasury bills to cause the move. Accordin g to the short-run Phillips curve, if unemploy ment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following ? 179) _____ A ) a in the dune empl coym r ent erate ato s 3.0 e% an increase in the unemployment rate to 3.4% D) a return to the original inflation rate of 1.3% Figure 15-3 180) Refer to Figure 15-3. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B 180) _____ A ) i and nprof cits oare m falli eng. the economy is below full employment. D) the E) unemployment rate is very low. there is pressure on wages and prices to fall. Figure 15-1 181) Refer to Figure 15-1. Suppose the economy is in short-run equilibriu m above potential GDP and automatic stabilizers move the economy back to long-run equilibriu m. Using the static AD-AS model in the figure above, this would be depicted as a movemen t from 181) _____ A ) A to E. B) C to B. C) B to A. D) E to A. E) D What is the natural rate of unemploy ment? 182) _____ A ) t t hrate ethat exist us nwhe en m the pecon l omy ois at ypote m ntial eGD nP an D) unemployment rate of 0% the 183) unemployment rate that exists when the economy is at a trough in a business cycle Matt's real wage in 2010 is $26.80. If the price level is 104, what is Matt's nominal wage? 183) _____ A ) $30.80 B) $27.87 C) $26.80 D) $ 2 Figure 16-2 184 Refer to Figure 16-2. Suppose the economy is at point B in the figure above. Which of the following is true? 184) _____ A ) Eflati xon pand eactu cal t infla etion dare the i sam ne. The economy is producing at potential GDP. D) The current E) unemployment rate is 5%. The expected 185) rate of inflation is 3%. Refer to Figure 16-2. Suppose the economy is at point C. If the Fed decreases the money supply so that inflation falls, the economy will ________ in the long run, holding all else constant. 185) _____ A ) eventually move to point A B) even tually move stay at point C D) mov e to point A 1 8 6 ) point B If actual inflation is greater than expected inflation, what is the relationsh ip between the actual real wage and the expected real wage? 186) _____ A ) Tl hwag ee will abe clowe t r uthan athe l expe cted r real ewag ae. The relationship between the actual real wage and the expected real wage cannot be predicted. D) The actual real wage will be equal to the expected real wage. 187) If firms and workers have rational expectatio ns, including knowledg e of the policy being used by the Federal Reserve 187) _____ A ) e mo xneta pry apoli ncy is s espe i ciall oy neffe active r . y expansionary monetary policy is effective in the short run and the long run. D) expansionary 188) monetary policy is ineffective. In which of the following situations might you expect expansion ary monetary policy to reduce the unemploy ment rate? 188) _____ A ) i infl f atio n is ahigh cer t than uexpe acted l if actual D) inflation is lower than expected if changes in 189) monetary policy are unanticipated If wages and prices adjust slowly, we would expect expansion ary monetary policy to be 189) _____ A ) l to eredu s ce s the natu l ral i une kmpl eoym l ent yrate. more likely to reduce inflation. D) more likely to 190) result in a vertical short-run Phillips curve. Models that focus on factors such as technolog y shocks rather than "monetary " explanatio ns of fluctuatio ns in real GDP are called 190) _____ A ) short-run macroeconomic models. B) real business nonmonetary business cycle models. D) ratio nal 1 9 1 ) models. Which of the following would be the source of a "real" business cycle? 191) _____ A ) uted ncont aracti nonar t y i mon cetar i y ppoli acy changes in D) technology unanticipated 192) expansionary monetary policy Some economist s argue that the short-run Phillips curve is not vertical, and that monetary policy can be effective in the short run. Which one of the following is not one of the reasons for this skepticis m? 192) _____ A ) Eence m sho pws i wor r kers i and cfirm a s l have ratio enal vexpe i ctati dons. Contracts with workers and suppliers may hinder firms' abilities to adjust to price changes. D) Wages and prices may not adjust rapidly enough to keep the short-run Phillips curve vertical. Figure 16-2 193) Refer to Figure 16-2. Suppose the economy is at point A. The Fed uses expansion ary monetary policy to lower the unemploy ment rate permanen tly below the level associated with A. Which of the following will occur? 193) _____ A ) I n nwill f acce l lerat ae in t the i long orun. Unemployment will accelerate in the long run. D) Unemployment will rise above the natural rate. 194) Refer to Figure 16-2. At which point is the unemploy ment rate equal to the natural rate of unemploy ment? 194) _____ A ) A C D) There is 195) insufficient information on the graph to answer this question. Refer to Figure 16-2. Suppose the economy is at point A in the figure above. Which of the following is true? 195) _____ A ) Tploy hmen e t rate cis uequa r l to r the enatu nral t rate of uune nmpl eoym m ent. The current D) unemployment rate is 3.8%. The expected rate of inflation is 5.5%. E) The economy 196) will move from A to B. Refer to Figure 16-2. Suppose the economy is at point C in the figure above. If workers adjust their expectatio ns of inflation, which of the following will be true? 196) _____ A ) W d ofirm r s kexpe ect r infla s tion to abe n1%. The natural rate of unemployment is 6%. D) The short-run Phillips curve will shift to the right. E) The short-run 197) Phillips curve will shift to the left. Refer to Figure 16-2. Suppose the economy is at point A in the figure above. Which of the following is true? 197) _____ A ) Trun hPhill eips curv s e hwill oshift r to t the - left. The long-run D) Phillips curve will shift to the left. The short-run Phillips curve will shift to the right. E) The long-run 198) Phillips curve will shift to the right. Refer to Figure 16-2. Suppose the economy is at point B. If the Fed increases the money supply so that inflation increases, the economy will ________ in the short run, holding all else constant. 198) _____ A ) eventually move to point A B) stay eventually move to point C D) mov e to point A 1 9 9 ) point B In the long run, the Phillips curve is a ________ at ________ . 199) _____ A ) v line e; the r expe t cted i rate cof ainfla l tion horizontal line; 0% inflation D) negatively 200) sloped line; the intersection of aggregate demand and short-run aggregate supply Employee s at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectatio ns. If inflation is actually 4 percent over the next year, which of the following will occur? 200) _____ A ) U nt of nuniv eersit m y pemp l loye oes ywill m fall. e Real wages for university employees will rise. D) Inflation will be 5 percent the following year. 1) C 2) D 3) C 4) D 5) D 6) A 7) A 8) C 9) C 10) C 11) C 12) D 13) B 14) D 15) B 16) B 17) D 18) D 19) A 20) D 21) D 22) A 23) A 24) A 25) C 26) D 27) B 28) C 29) C 30) C 31) C 32) B 33) C 34) B 35) B 36) A 37) B 38) D 39) C 40) D 41) D 42) A 43) C 44) C 45) B 46) A 47) D 48) B 49) D 50) B 51) B 52) A 53) B 54) D 55) D 56) A 57) B 58) D 59) C 60) A 61) A 62) A 63) C 64) D 65) D 66) A 67) C 68) C 69) A 70) D 71) A 72) B 73) A 74) C 75) B 76) B 77) B 78) B 79) D 80) C 81) B 82) B 83) D 84) B 85) D 86) B 87) D 88) C 89) E 90) M2 not change and M1 will rise by $1,000. When under your mattress, the $1,000 would be counted as currency. Going from a will savings account to currency, would raise M1, but both are part of M2, so M2 would not change. 91) C 92) C 93) C 94) D 95) A 96) D 97) C 98) D 99) D 100) C 101) A 102) E 103) E 104) E 105) D 106) B 107) D 108) A 109) C 110) A 111) B 112) B 113) C 114) D 115) M2 not change and M1 will rise by $1,000. Going from a savings account to checking account would raise M1, but both are part of will M2, so M2 would not change. 116) The 0 from your checking account will reduce the bank's checking account deposits and reserves by $1,000. withd Assets Liabilities rawal of Reserves -$1,000 Deposits -$1,000 $1,00 117) D 118) C 119) C 120) D 121) A 122) C 123) A 124) C 125) A 126) B 127) C 128) B 129) C 130) C 131) B 132) D 133) B 134) A 135) A 136) D 137) C 138) D 139) D 140) D 141) C 142) B 143) A 144) A 145) A 146) C 147) A 148) D 149) A 150) C 151) B 152) B 153) C 154) E 155) A 156) C 157) D 158) C 159) B 160) E 161) D 162) C 163) D 164) D 165) C 166) C 167) A 168) D 169) A 170) B 171) B 172) D 173) B 174) D 175) B 176) B 177) E 178) C 179) A 180) D 181) B 182) A 183) B 184) E 185) A 186) A 187) D 188) C 189) B 190) B 191) C 192) A 193) A 194) A 195) A 196) E 197) B 198) A 199) B 200) C ...
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This note was uploaded on 04/18/2011 for the course ECON 1101 taught by Professor Rappoport during the Spring '08 term at Temple.

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