Macroeconomics Final Exam Review Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. B 1. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply a. increases the price level and the value of money. b. increases the price level and decreases the value of money. c. decreases the price level and increases the value of money. d. decreases the price level and the value of money. Use the figure below for the following questions. Figure 30-1 A 2. Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2, a. the equilibrium value of money decreases. b. the equilibrium price level decreases. c. the supply of money has decreased. d. the demand for goods and services will decrease.
C 3. Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2, the graph shows that a. the demand for goods and services decreases. b. the economy's ability to produce goods and services increases. c. the equilibrium price level increases. d. the equilibrium value of money increases. B 4. Under a fractional reserve banking system, banks a. hold more reserves than deposits. b. generally lend out a majority of the funds deposited. c. cause the money supply to fall by lending out reserves. d. All of the above are correct. A 5. If the reserve ratio is 4 percent, the money multiplier is a. 25 b. 20 c. 4 d. 2 A 6. Laura puts money into a piggy bank so she can spend it later. What function of money does this illustrate? a. store of value b. medium of exchange c. unit of account d. None of the above is correct. D 7. Which of the following is not included in M1? a. currency b. demand deposits c. traveler’s checks d. credit cards C 8. Which of the following statements is not correct? a. The catch-up effect is based on the assumption of diminishing returns to capital. b. Investment in poor countries by citizens of rich countries is one way poor countries can learn new technologies.
c. Malthus argued that charity and government aid was an effective way to reduce poverty. d. Peace and justice are keys to growth. C 9. To increase the money supply, the Fed could a. sell government bonds. b. increase the discount rate. c. decrease the reserve requirement. d. None of the above is correct. Consider the exhibit below for the following questions. Figure 33-1 A 10. Refer to Figure 33-1. If the economy starts at C, an increase in the money supply moves the eco-nomy a. to A in the long run. b. to B in the long run. c. back to C in the long run. d. to D in the long run. C 11. Refer to Figure 33-1. An increase in the money supply would move the economy from C to a. B in the short run and the long run. b.
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