question
If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to
a. $8,000 of new money.
b. $11,500 of new money.
c. $7,000 of new money.
d. $12,500 of new money.
a. $8,000 of new money.
b. $11,500 of new money.
c. $7,000 of new money.
d. $12,500 of new money.
answer
a. $8,000 of new money. (1,000 / 12.5%)
question
A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?
a. $200
b. $100
c. $150
d. $50
a. $200
b. $100
c. $150
d. $50
answer
c. $150
question
Consider five individuals with different occupations.
Allen prepares taxes wants ribs
Betty does dry cleaning wants computer fixed
Calvin fixes computers wants bread
Diedre bakes bread wants taxes prepared
Eric barbecues ribs wants dry cleaning
In a barter system which of the following pairs has a double coincidence of wants?
a. Allen and Eric
b. Diedre and Calvin
c. Both A and B are correct.
d. None of the above are correct.
Allen prepares taxes wants ribs
Betty does dry cleaning wants computer fixed
Calvin fixes computers wants bread
Diedre bakes bread wants taxes prepared
Eric barbecues ribs wants dry cleaning
In a barter system which of the following pairs has a double coincidence of wants?
a. Allen and Eric
b. Diedre and Calvin
c. Both A and B are correct.
d. None of the above are correct.
answer
d. None of the above are correct.
question
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
a. more reserves, so the money multiplier will fall.
b. fewer reserves, so the money multiplier will fall.
c. more reserves, so the money multiplier will rise.
d. fewer reserves, so the money multiplier will rise.
a. more reserves, so the money multiplier will fall.
b. fewer reserves, so the money multiplier will fall.
c. more reserves, so the money multiplier will rise.
d. fewer reserves, so the money multiplier will rise.
answer
a. more reserves, so the money multiplier will fall.
question
If the Fed sells government bonds to the public, then reserves
a. increase and the money supply decreases.
b. decrease and the money supply increases.
c. increase and the money supply increases.
d. decrease and the money supply decreases.
a. increase and the money supply decreases.
b. decrease and the money supply increases.
c. increase and the money supply increases.
d. decrease and the money supply decreases.
answer
d. decrease and the money supply decreases.
question
The price level is a
a. dichotomous variable
b. nominal variable.
c. relative variable.
d. real variable.
a. dichotomous variable
b. nominal variable.
c. relative variable.
d. real variable.
answer
b. nominal variable.
question
***Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?
a. 2.1 percent
b. 3.1 percent
c. 2.4 percent
d. 5.1 percent
a. 2.1 percent
b. 3.1 percent
c. 2.4 percent
d. 5.1 percent
answer
b. 3.1 percent
question
Monetary neutrality means that a change in the money supply
a.does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run.
b. does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run.
c.does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
d.does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.
a.does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run.
b. does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run.
c.does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
d.does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.
answer
c.does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run. (Takes long to actually happen)
question
*****When inflation rises, people will desire to hold
a. less money and will go to the bank less frequently.
b. less money and will go to the bank more frequently.
c. more money and will go to the bank more frequently.
d. more money and will go to the bank less frequently
a. less money and will go to the bank less frequently.
b. less money and will go to the bank more frequently.
c. more money and will go to the bank more frequently.
d. more money and will go to the bank less frequently
answer
b. less money and will go to the bank more frequently.
question
*****When the money market is drawn with the value of money on the vertical axis, an increase in the money supply
a. decreases the price level and increases the value of money.
b. increases the price level and decreases the value of money.
c. increases the price level and increases the value of money.
d. decreases the price level and decreases the value of money.
a. decreases the price level and increases the value of money.
b. increases the price level and decreases the value of money.
c. increases the price level and increases the value of money.
d. decreases the price level and decreases the value of money.
answer
b. increases the price level and decreases the value of money.
question
Other things the same, if the exchange rate changes from 75 Algerian dinar per dollar to 72 Algerian dinar per dollar, the dollar has
a. depreciated and so buys fewer Algerian goods.
b. depreciated and so buys more Algerian goods.
c. appreciated and so buys fewer Algerian goods.
d. appreciated and so buys more Algerian goods.
a. depreciated and so buys fewer Algerian goods.
b. depreciated and so buys more Algerian goods.
c. appreciated and so buys fewer Algerian goods.
d. appreciated and so buys more Algerian goods.
answer
a. depreciated and so buys fewer Algerian goods.
question
In an open economy, gross domestic product equals $1,650 billion, government expenditure equals $250 billion, and savings equals $550 billion. What is consumption expenditure?
a. $550 billion
b. $250 billion
c. $300 billion
d. $850 billion
a. $550 billion
b. $250 billion
c. $300 billion
d. $850 billion
answer
d. $850 billion (1,650 - 250 - 550)
question
An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. What is the nominal exchange rate if purchasing-power parity holds?
a. 2.0
b. 1.0
c. .50
d. None of the above is correct.
a. 2.0
b. 1.0
c. .50
d. None of the above is correct.
answer
a. 2.0 (for everyone 100 US dollars you'll need double (*2) to equal Singapore dollars)
question
****If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?
a. 2/3
b. 3/2
c. 1/2
d. 2
a. 2/3
b. 3/2
c. 1/2
d. 2
answer
d. 2 [(6 pesos / $3 ) = 2 pesos per $1]
question
If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports rose by $10 billion, its net exports would now be
a. -$10 billion.
b. $0
c. -$20 billion.
d. $10 billion.
a. -$10 billion.
b. $0
c. -$20 billion.
d. $10 billion.
answer
b. $0
question
****Which of the following would raise the price level in both the short and long run?
a. an increase in taxes
b. a decrease in the minimum wage
c. an increase in the capital stock
d. an increase in government expenditures
a. an increase in taxes
b. a decrease in the minimum wage
c. an increase in the capital stock
d. an increase in government expenditures
answer
d. an increase in government expenditures
question
In the early 1930s in the United States, there was a
a. large increase in output. In the early 1940s there was a large decrease in output.
b. large decrease in output. In the early 1940s there was a large increase in output.
c. large increase in output. In the early 1940s there was also a large increase in output.
d. large decrease in output. In the early 1940s there was also a large decrease in output.
a. large increase in output. In the early 1940s there was a large decrease in output.
b. large decrease in output. In the early 1940s there was a large increase in output.
c. large increase in output. In the early 1940s there was also a large increase in output.
d. large decrease in output. In the early 1940s there was also a large decrease in output.
answer
b. large decrease in output. In the early 1940s there was a large increase in output.
question
***Tax cuts shift aggregate demand
a. left as do increases in government spending.
b. left while increases in government spending shift aggregate demand right.
c. right as do increases in government spending.
d. right while increases in government spending shift aggregate demand left.
a. left as do increases in government spending.
b. left while increases in government spending shift aggregate demand right.
c. right as do increases in government spending.
d. right while increases in government spending shift aggregate demand left.
answer
c. right as do increases in government spending.
question
In 2008, the United States was in recession. Which of the following things would you not expect to have happened?
a. increased layoffs and firings.
b. a higher rate of bankruptcy.
c. increased claims for unemployment insurance.
d. increased real GDP.
a. increased layoffs and firings.
b. a higher rate of bankruptcy.
c. increased claims for unemployment insurance.
d. increased real GDP.
answer
d. increased real GDP.
question
According to the classical model, which of the following would double if the quantity of money doubled?
a. prices but not nominal income
b. nominal income but not prices
c. both prices and nominal income
d. neither prices nor nominal income
a. prices but not nominal income
b. nominal income but not prices
c. both prices and nominal income
d. neither prices nor nominal income
answer
c. both prices and nominal income
question
How would each of the following impact aggregate demand?
How would they impact Y & P in the short-run?
In the Long-run?
1. money supply increases
2. US $ depreciates relative to all other currencies
3. government cuts the military budget in half
4. stock market plunges
5. business are optimistic about the future of the economy
6. oil prices dramatically increase
7. foreign incomes fall
8. household incomes rise
9. technological advances accelerate impacting many industries
10. congress passes a large infrastructure bill
11. firms expectations about future prices rises
How would they impact Y & P in the short-run?
In the Long-run?
1. money supply increases
2. US $ depreciates relative to all other currencies
3. government cuts the military budget in half
4. stock market plunges
5. business are optimistic about the future of the economy
6. oil prices dramatically increase
7. foreign incomes fall
8. household incomes rise
9. technological advances accelerate impacting many industries
10. congress passes a large infrastructure bill
11. firms expectations about future prices rises
answer
1. interest rates fall, higher level of investment spending
5. more optimistic, they think people will be spending more, and more of the products will be profitable at the given interest rate (rightward shift)
6. firms expectations change, **
7. exports will fall because people have less money, so NX falls
8. consumption will also rise
9. firms invest more to keep up (shift to right)
10. G = 100 instead of G = 80 (shift to the right)
11. **8
In the long run = people wages will self-correct
ex. if prices are too high it'll be fixed, if outputs are too low, people will accept lower wages?
5. more optimistic, they think people will be spending more, and more of the products will be profitable at the given interest rate (rightward shift)
6. firms expectations change, **
7. exports will fall because people have less money, so NX falls
8. consumption will also rise
9. firms invest more to keep up (shift to right)
10. G = 100 instead of G = 80 (shift to the right)
11. **8
In the long run = people wages will self-correct
ex. if prices are too high it'll be fixed, if outputs are too low, people will accept lower wages?
question
If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it
a. must increase required reserves by $50.
b. will initially see reserves increase by $500.
c. will be able to use this deposit to make new loans amounting to $450.
d. All of the above are correct.
a. must increase required reserves by $50.
b. will initially see reserves increase by $500.
c. will be able to use this deposit to make new loans amounting to $450.
d. All of the above are correct.
answer
d. All of the above are correct.
question
Other things the same, which of the following would both make Americans more willing to buy Italian goods?
a. the nominal exchange rate falls, the price of goods in Italy rises
b. the nominal exchange rate falls, the price of goods in Italy falls
c. the nominal exchange rate rises, the price of goods in Italy rises
d. the nominal exchange rate rises, the price of goods in Italy falls
a. the nominal exchange rate falls, the price of goods in Italy rises
b. the nominal exchange rate falls, the price of goods in Italy falls
c. the nominal exchange rate rises, the price of goods in Italy rises
d. the nominal exchange rate rises, the price of goods in Italy falls
answer
d. the nominal exchange rate rises, the price of goods in Italy falls
question
Imagine the U.S. economy is in long-run equilibrium. Then suppose the value of the U.S. dollar increases. At the same time, people in the U.S. revise their expectations so that the expected price level rises. We would expect that in the short-run
a. the price level will rise, and real GDP might rise, fall, or stay the same.
b. the price level will fall, and real GDP might rise, fall, or stay the same.
c. real GDP will rise and the price level might rise, fall, or stay the same.
d. real GDP will fall and the price level might rise, fall, or stay the same.
a. the price level will rise, and real GDP might rise, fall, or stay the same.
b. the price level will fall, and real GDP might rise, fall, or stay the same.
c. real GDP will rise and the price level might rise, fall, or stay the same.
d. real GDP will fall and the price level might rise, fall, or stay the same.
answer
d. real GDP will fall and the price level might rise, fall, or stay the same.
question
Suppose the economy starts where LRAS = AD1 = SRAS1. A decrease in short-run aggregate supply would be consistent with the movement to
a. P1, Y1.
b. P1, Y2.
c. P2, Y1.
d. P3, Y2.
a. P1, Y1.
b. P1, Y2.
c. P2, Y1.
d. P3, Y2.
answer
c. P2, Y1.
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