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Practice Exam 2 (ECON E-202; Introduction to Macroeconomics; Wenyi Shen)

Practice Exam 2 (ECON E-202; Introduction to Macroeconomics; Wenyi Shen)

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Unformatted text preview: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is NOT a function of the Federal Reserve System? A) supply fiduciary currency to the economy 13) implement fiscal policy C) provide a system for check collection and clearing D) regulate the money supply 2) Under which of the following circumstances would the government be running a deficit? A) G = $7 trillion B) G = $7 trillion C) G = $5 trillion D) G = $5 trillion T = $7 trillion T = $10 trillion T = $5 trillion T = $7 trillion TR 2 $0 TR = $3 trillion TR = $1 trillion TR = $1 trillion 3) If all banks initially have zero excess reserves, the required reserve is 10 percent, and a check for $1 million on Bank XYZ is deposited in Bank ABC, then excess reserves in the banking system are now equal to A) $1 million. B) $0. C) $900,000. D) $450,000. _____.__.————— Amount Component (Billions of Dollars) Currency $250 Coins 50 Transaction Deposits 600 Savings Deposits 450 Traveler's Checks 10 Small Denomination Time Deposits 1,200 Money Mkt Mutual Fund Shares 500 Over Night Eurodollars 20 Over Night Repurchase Agreements at Commercial Banks 65 Available Credit on Credit Cards 900 Lar e Time De osits 2,500 __g___L____————- 4) Refer to the above table. The value of M1 is A) $910 billion. B) $1,360 billion. C) $2,560 billion. D) $860 billion. 5) If the consumption function is defined as C = 5,500 + 0.9Y, what is the multiplier? A) 0.1 B) 0.9 C) 6.1 D) 10 6) If the interest rate increases, the A) money demand curve will shift to the left. B) quantity of money demanded will fall. C) quantity of money demanded will remain unchanged. D) money demand curve will shift to the right. 1) 2) 3) 4) 5} 6) 7) The reason that differences in economic growth rates are important in the long run is that 7) A) population naturally shrinks in most countries. B) growth compounds over time. C) real GDP usually drops when adjusted for inflation. D) nominal GDP typically increasesifaster than real GDP. 8) If short-run aggregate supply is upward sloping, the assumption is that 8) A) prices are set by government mandate. B) prices are constant. C) prices are perfectly sticky. D) prices adjust gradually. 9) How is economic growth graphically depicted? 9) A) The long-run aggregate supply curve shifts right. B} Short-run aggregate supply shifts left. C) Aggregate demand shifts to the right. D) The aggregate demand curve shifts to the left. 10) Crowding out refers to a decline in ' as a result of an increase in . 10) A) private expenditures; gdvernment purchases B) tax revenues; unemployment C) government purchases; tax rates D) government purchases; private expenditures 11) The demand for loanable funds is downward sloping because the the interest rate, the 11) the number of profitable investment projects a firm can undertake, and the the quantity demanded of loanable funds. A) greater; smaller; greater B) lower; greater; greater C) greater; greater; greater D) lower; smaller; greater Prlce level (GDP deflator. 2000 = 100) Heal GDP (trillions of 2000 dollars) 12) Refer to the above figure. An increase in taxes would be depicted as a movement from 12) using the static AD-AS model in the figure above. mama seems CJBtoC D)AtoB 13) One of the most important factors that affect economic growth is 13) A) the number of workers in heavy industry. B) gold reserves. C) the rate of saving. D) which political party is in power. 14) The required reserve ratio equals 20 percent and all banks initially have zero excess reserves. The 14) Fed buys $1 million in U.S. government securities. The most the money supply can increase is A) $10 million. B) $4 million. C) $5 million. D) $1 million. 15) Under which one of the following situations would you be better off? 15) A) You lend a friend $1,000 at 6 percent to be repaid in one year and unanticipated inflation is '7 percent during the year. B) You borrowed $2,500 at 7 percent to pay for this year's college expenses and unanticipated inflation is 12 percent during the year. C) You have $10,000 in your savings account paying 5 percent per year and unanticipated inflation is 8 percent per year. D) You have paid $500 for a $1,000 US. savings bend that matures in 10 years and unanticipated inflation is 10 percent per year. newsman Realm 2014 $14.2 trillion $14.2 trillion 2015 14.6 trillion 14.5 trillion 16) Refer to the above table. The hypothetical information in the table shows what the values for real 16) 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? A) The Fed should lower capital gains taxes. B) The Fed should pursue contractionary policy. C) The Fed should lower the target for the interest rate. D) The trading desk should sell Treasury securities. 17) Say's Law explains 17) A) why economies experience business cycles. B) how the economy can go into recession. C) how long« term real Gross Domestic Product (GDP) stability is achieved in the classical model. D) how long~run real Gross Domestic Product (GDP) stability is achieved in the Keynesian model. 18) If the MP5 increases, the autonomous spending multiplier 18) A) decreases. B) stays the same. C) can either increase or decrease, depending on what happens to the MPC. D) increases. 19) As a result of contractionary monetary policy, A) interest rates rise, the dollar appreciates, and domestic goods become cheaper, thereby increasing net exports. B) interest rates rise, the dollar appreciates, and domestic goods become cheaper, thereby reducing net exports. C) interest rates rise, the dollar appreciates, and domestic goods become more expensive, thereby reducing net exports. D) interest rates fall, the dollar depreciates, and domestic goods become cheaper, thereby reducing net exports. 20) Proponents of the interest-rate-based monetary policy transmission mechanism argue that when the Federal Reserve buys bonds, there will be A) an increase in investment spending. B) a decrease in the money supply. C) a decrease in nominal Gross Domestic Product (GDP), but not in real income. D) a decrease in the price of outstanding bonds. 21) For barber to occur there must be A) hyperinflation. B) a double coincidence of wants for each good to be exchanged. C) one person who pays cash. D) two people willing to pay with credit. Price Level 13 14 15 Real esp in Trillions er ear 22) Look at the above figure. Suppose the economy was initially in equilibrium at point A. What point would represent the short— run equilibrium if the Fed makes an open market purchase of bonds? A)C B)B C)A D)D 23) Gross Domestic Product (GDP) 2 $13.0 trillion, consumption = $9.5 trillion, depreciation = $1.8 trillion, other business income adjustments less indirect business taxes : $0.2 trillion, and net US. income earned abroad = $0.1 trillion. Use this information to calculate national income (NI). A) NI = $11.4 billion B) N1 = $11.5 billion C) N1 = $11.3 billion _ D) N] = $11.0 biilion 19) 20) 21) 24) Which one of the following would NOT increase aggregate demand? A) an increase in long run aggregate supply B) an increase in the amount of money in circulation C) a reduction in real interest rates D) tax decreases 25) The government purchases multiplier equals the change in divided by the change in A) government purchases; equilibrium real GDP B) government purchases; consumption spending C) equilibrium real GDP; government purchases D) consumption spending; government purchases 26) A fiduciary monetary system ultimately rests on A) the value of the metal backing up the system. B) the value of the assets backing up the system. C) the difficulty of counterfeiting the currency. D) the public‘s confidence in the system. 27) If the economy is near full capacity, the effect of a negative aggregate demand shock is to A) increase the level of aggregate demand. 8) increase the level of employment. C) increase the firm's cost of producing at every level of output. D) cause the price level to fall. 28) For this question, assume that the required reserve ratio is 10%. Suppose a bank has total transaction deposits of $500,000 and holds $400,000 as reserves. Which of the following is true? A) The excess reserves for this bank are $50,000. B) The excess reserves for this bank are $350,000. C) The required reserves for this bank are $5,000. D) The required reserves for this bank are $100,000. 29) Suppose that aggregate demand increases along the upward sloping portion of the aggregate supply curve. What is the result? A) Nominal GDP increases more than real GDP increases. B) Real GDP increases more than nominal GDP increases. C) Nominal GDP and real GDP increase by the same amount. D) Nominal GDP and real GDP decrease by the same amount. 30) Gross domestic product is A) NDP less changes in inventories. B) NDP plus taxes. C) NDP plus depreciation. D) NDP plus net exports. 31) According to the quantity theory of money, A) a given proportionate increase in the money supply leads to an equal proportionate increase in the price level. B) velocity varies indirectly with the rate of growth of'the money supply. C) real Gross Domestic Product (GDP) is directly related to changes in the money supply in the long run. D) a proportionate increase in the mOney supply leads to a less than proportionate increase in real Gross Domestic Product (GDP), at least in the long run. 24) 25} 26) 27) 23) 29} 30) 31) Hypothetical Data for Nation "A" in Billions of Local Currency Exports of goods 50 Imports of goods -100 Exports of services 80 Imports of services -20 Net unilateral transfers -25 Capital account 100 Official reserve transaction accounts ~85 32) Use the above table. Nation "A" has a current account A) surplus of 15. B) surplus of 60. C) deficit of 60. D) deficit of 15. 33) Full employment means that A) taking seasonal fluctuations into account, only frictional and structural unemployment exist. B) everyone who wants a'job has a job, although it may not be the job they really want. C) the Sum of structural and cyclical unemployment is greater than frictional unemployment. D) everyone who wants a job has a job, and they have the job they most prefer. Planned Planned Planned Real Consumption Saving Investment GDP $6,000 -$1, 000 $1,000 $5,000 10,000 0 - 10,000 14,000 1,000 - 15,000 18,000 2,000 — 20,000 22,000 - - 25,000 26,000 - - 80,000 34) According to the above table, it real Gross Domestic Product (GDP) is $30,000, planned saving equals A) $4,000. B) $5,000. C) $2,000. D) $3,000. 35) If the current price of a market basket of goods is $850 and the base year price for the same market basket is $500, what is the value of the price index? A) 140 B) 100 C) 120 D) 170 36) Innovation typically increases when A) market incentives and private property rights are encouraged. B) the legal system is weak. C) govemrnent controls the resource base. D) high taxes are present. 37) Suppose that there is a current account deficit of $255 billion and a capital account surplus of $245 billion. It may be concluded that the A) official reserve transaction account balance is +10. B) overall balance of payments is +10. C) official reserve transaction account balance is - 10. D) overall balance of payments is » 10. 32) 33) 34) 35) 35) 37) Bank of Wealth Balance Sheet A) an decrease in the quantity of money in cirCulation. B) the increase in exports to the foreign sector. C) the decrease in interest rates. D) a decrease in the real value of cash balances. Assets Liabilities Demand Deposits $250,000 Required reserves $25,000 Excess reserves $10,000 Total Reserves $35,000 Loans $215,000 Total Assets $250,000 Total Liabilities $250,000 38} In the above table, if a customer withdrew $10,000, the bank would 38) A) have excess reserves of $5,000. B) have $11,000 in excess reserves. C) have to borrow money to meet the required reserve ratio. D} have zero excess reserves. 39) Which of the following actions by the Fed would lead to an increase in the money supply? 39) A) The purchase of government securities B) An increase in tax rates C) An increase in the discount rate D) An increase in the required reserve ratio Price Level a 3 A02 A01 Rea! G D P per Year 40) In the above figure, a movement from point A to point B can be explained by 40) ...
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