homework5_solutions - Homework 5 INTRODUCTION TO...

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Unformatted text preview: Homework 5 INTRODUCTION TO MACROECONOMICS SPRING 2010 Name DUE May 6, 2010 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Refer to the information provided in Figure 12.1 below to answer the questions that follow. t i K t e \ g 7 ___._,~h_,.\‘\ ‘8 fl “:7; 1 \\ q) \\ 83 M 1.. 3;: 5 I rN‘. l I "‘ , ,,,,‘l____ VVVV ........................................ .m .... .. > 100 250 Planned investment (33 billion) Figure 12.1 1) Refer to Figure 12.1. If the interest rate drops from 7% to 5%, planned investment 1) A) increases, causing aggregate expenditures to fall. B decreases, causing both aggregate expenditures and aggregate output to rise. ncreases, causing both aggregate expenditures and aggregate output to rise. " “caé’h’wwvd‘ D) increases, causing aggregate expenditures and aggregate output to fall. Mwn i‘m‘ USWvC/r {WW iv and <2 ) Refer to the information provided in Figure 11.3 below to answer the questions that follow. "a ‘ RE :2). Q t is t" CK. n-e; a :5 ‘44" Money ($ million) Figure 11.3 2) Refer to Figure 11.3. At an interest rate of 8%, there is a 2) A) shortage of money and the interest rate will rise. @urplus of money and the interest rate will decline. C) surplus of money and the interest rate will rise. D) shortage of money and the interest rate will decline. 3) Refer to Figure ll .3. At an interest rate of 4%, there is a A surplus of money and the interest rate will decline. .‘ iortage of money and the interest rate will rise. C) shortage of money and the interest rate will decline. D) surplus of money and the interest rate will rise. 4) Fiscal policy affects the money market through its effect on come and money demand. ) money supply and money demand. A) money supply and income. C) income and money supply. 5) The link between the money market and the goods and services market exists through the impact of A) tax revenue on the government budget. B) income on government spending. C) money supply on money demand. @income on money demand. 6) The money market and the goods market are linked through the impact of interest rate on overnments endin ‘. B) un lanncds endin . P g P P g A) g @Dlanned investment. 7) Monetary policy affects the goods market through its effect on D) money supply. A) income and planned investment. C) the interest rate and money demand. D) income and money demand. Refer to the information provided in Figure 12.2 below to answer the questions thatfollow. \ Ms 1 1?: \‘\ i 8 133’ it. 1 g 6 | , E l | 1 \‘~ 0, i I E 1 ‘ M 80 100 190 Money (35 billion) Figure 12.2 8) Refer to Figure 12.2. The equilibrium interest rate is A) 6%. B) 2%. D) 8%. 9) Increasing the required reserve ratio shifts the money supply curve to the and the equilibrium interest rate. A) left; decreases B) right; increases he interest rate and planned investment. 10) When the interest rate decreases, individuals Y \)r , ’l\ C” 3' (V1 w ’ V ’2“ 9 )0) Interest rate does not affect saving and consumption decisions. @re likely to save less. C) are likely to save more. D) are likely to consume less. Refer to the information provided in Figure 12.4 below to answer the questions that follow. Interest rate 18 Planned investment (in billions) Figure 12.4 11) Refer to Figure 12.4. Planned investment could decrease from $15 million to $10 million if 11) @ghe government increases government expenditures. ’l‘ )3 ' a) M" 4‘ :3? '1‘ 3:) l B) the government increases net taxes. Cam“; awn. aw} ) C) the government reduces government expenditures. D) the Fed increases the money supply. 12) Which of the following sequence of events follows an expansionary monetary policy? 12) + .MCMV. M axx/ a: WWW “ A) l=IT=>AET=>Y® Fa”; Il=AEl=>YL p WMV MW: AEl=> n. D) N31: AB): Y). 0‘” t; . 7‘ . '7“ . . 1. ) Whlch of the followmg sequence of events follows an expansmnary fiscal policy? 13) A) ARE): Yfifidl: rl=> Il=>AEl. B) AET=> YTQMdi: 4:; Ii=> Am. 5;. ET: YT=>Mde> rT:> IlaAEi. D) A®=> Yl=>Mdl=> rl=> nzsAET. l“ , ‘ Hemowfi‘i‘ 14) Which of the following sequence of events follows an increase in net taxes? T W Cm“ 14) yam: w: Md) 2 rl=> It: AET. BS4131; yr :> Md) :> r? =:> 11: Am. c AET: Yistl: rl=> Il=>AEl. D) AET=>Ytz>Mde> A» IT:>AET. Nw;) —._.._..._._ 15) If planned investment does not fall when the interest rate rises, there will be I W15) A) a complete crowding—out effect. B) a slight crowding—out effect. ) @o crowding—out effect. D) a substantial crowding~out effect. . (A C . Mr» MA is were {we mews—i a 3 ’UN» 16) Monetary policy can be effective only if 16) A) government spending reacts to changes in the interest rate. EMS/r: rJ/ \ fut I law/“MI v D) anned investment reacts to changes in the interest rate. \ ‘4 flevmmxi W‘l »- 17) Which of the following reduces the severity of the crowding—out effect whenever the government 17) increases spending? B) money demand reacts to changes in the interest rate. e money supply reacts to changes in the interest rate. A) An expansionary fiscal policy B) A contractionary fiscal policy C) A contractionary monetary policy DflAn expansionary monetary policy 18) The Federal Reserve has pursued strong contractionary policies twice in recent years: first in 18) 1973—74, and again in 1979~80. The Fed‘s purpose in following a tight monetary policy was to A) reduce the level of planned investment. B) reduce the government deficit. “ma-3X @low the inflation rate. D) reduce the interest rate. 19) Which of the following events will lead to an increase in the level of planned investment? 19) A) An increase in the interest rate. V B) Relative to labor, capital becomes more expensive. 3: 4/ C) Businesses expect their sales to decrease in the future. I @apital utilization rates increase. 3: ,T Refer to the information provided in Figure 12.8 below to answer the questions that follow. C + I + G l / B / g; g /// ,,,, ./~C+I+G(r if) ’6) 3 g C + I‘+G (r 2 r1) “8 s / ---------- W 5 § I l / /// s ,,,,,, /’ CL y/// / <45" ' m ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, W ’ Aggregate output Y Figure 12.8 i. . . ft 7 Y5 . . 20) Refer to Figure 12.8. Interest rate r1 is greater than interest rate r0. Which of the followmg would 20) hafle caused the planned aggregate expenditure function to shift from C + I + G to C + I ' + C? ®A contractionary monetary policy M r B) A contractionary fiscal policy C) A decrease in the cost of caki’cal relative to labor D) All of the above 21) The aggregate demand curve shows a \/V a} relationship betweenlgm (“a and total 21) quantity of output ’” Www ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, . .. LLLL .... .............................. We, ositive; the price level; demanded < B) negative; the price level; deggrgcgd) gative; the price level; supplied D) positive; the interest rate; demanded 22) Which of the following sequence of events is TRUE? mg 22) A) Y? => Md? rs rl B) PT => Md) 3 7T dim 2.» Mdt => r1 D) n @ Md) a TT “Shiv. / 23) Aggr‘egate demand decreases when the price level rises because the higher price level 23) auses the demand for money to increase, causing interest rates to rise. B) causes the interest rate to fall. C) means that the prices of some goods fall relative to the prices of other goods. D) means that people can afford to buy more goods. 24) The level of aggregate output demanded falls when the price level rises, because the resulting 24) increase in the interest rate will lead to A) higher investment spending and loweeconsumption spending. B) lower investment spending and higher consumption spending. C) higher investment spending and higher consumption spending. @lower investment spending and lower consumption spending. it. ~_"'cwl vi: i in goverdrgentg‘afirchasfs shi ts the A 9 curve to the V . B) aggregate supply; right V,“ aggregate demand; right 25) Anmbncrease e C) aggregate supply; left D) aggregate demand; left 26) A rightward shift in the aggregate demand curve can be caused by ax WW5“ lag/CV A) a decrease in taxes. an increase in money supply. B) @All of the above C) an increase in government spending. 27) The graph that shows the relationship between the aggregate quantity of output supplied by all the 27) firms in an economy and the overall price level is ,:;:. A) the production possibilities frontier. ,' B) l e aggregate supply curve. C) the aggregate demand curve. D) the aggregate production function. 28) If the economy is operating on the flat segment of the aggregate supply curve, an increase in 28) aggregate demand causes a change in the price level and a change in optput. Vigemall; big B) big; small C) small; small D) big; big _ en the aggregate supply curve is vertical, 29) 29) W )the economy is at capacity. .. ) B the economy is producing the maximum level of output. C) any increase in the price level will not cause an increase in aggregate output. All of the above 30) A decrease in the price level causes 30) A) a rightward shift in the aggregate supply curve. @a movement along the aggregate supply curve. C) a leftward shift in the aggregate supply curve. D) None of the above Refer to the information provided in Figure 13.5 below to answer the questions that follow. P i t 652 a i / ,AS 1 a / C / A80 .d ,, / « 8 1/./ B // “I,” 1/ Aggregate output Y Figure 13.5 31) Refer to Figure 13.5. The flooding in the Midwest during the summer of 1993 destroyed a large 31) portion of the agricultural crop in the United States. This caused A) the economy to move from Point B to Point A along A51. B) the short—run aggregate supply curve to shift from A51 to A50. C) the economy to move from Point C to Point B along A51. @ the short-run aggregate supply curve to shift from A51 to A52. 70 32) Refer to Figure 13.5. During the l9808, many firms in the United States were not investing in new 32) capital. This would have caused A) the short—run aggregate supply curve to shift from A51 to A50. the short—run aggregate supply curve to shift from A51 to A52. C) the economy to move from Point C to Point B along A51. D) the economy to move from Point B to Point A along A51. 33) An increase in government spending will completely crowd out investment if 33) A) money demand is not sensitive to the interest rate. Cgpagfa lit} ) ‘mw a” §3W1AS§ u ' . . 7 ' L . ~ A l” All” . liU‘éw-fl'l'r) it; B) money supply 1s1ncreased at the same time. @ my,va . W4. (if. \L! \ J ‘ ‘3 I t C) e economy is operating at capacity. l’v‘filflm l9 / 3W “iww‘ffi W D) the economy is operating well below capacity. ‘3 £1 )v 3) Mel p 3;) W? .3 3 J] ‘, I; CYTW-zbw‘ arm/l»- 34) Economic policies are effective concerning output when V 6M W 34) Ml? ) ’- A) the economy is producing potential output. @the economy is not producing at capacity. C) the unemployment rate is at the natural rate. D) the aggregate supply curve is vertical. 35) A sustained increase in the overall price level is 35) @nflation. B) a recession. C) stagflation. D) a price index. 1) C 2) B 3) B 4) B 5) D 6) C 7) B 8) C 9) D 10) 13 11) A 12) A 13) C 14) A 15) C 16) D 17) D 18) C 19) D 20) A 21) B 22) C 23) A 24) D 25) A 26) D 27) B 28) A 29) D 30) B W31”) ,_ 33) C 34) B 35) A ...
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This note was uploaded on 06/19/2011 for the course ECO 102 taught by Professor - during the Spring '10 term at Sam Houston State University.

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homework5_solutions - Homework 5 INTRODUCTION TO...

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