AS2 AS AS3 Price level, P AD 3 AD 2 SAD Figure 9.6 Output level, Y 1) Refer to Figure 9.6. Suppose the equilibrium is at point A. An oil embargo which raises the price of oil wo equilibrium to 1) A) point D. B) point E. C) point F . D) point H. 2) If the consumption function is C = 200 + 0.8Y and there is a $10 million increase in investment spending, aggregate demand curve will shift horizontally to the right by 2) A) $50 million. B) $12.5 million. C) $8 million. D) $2 million. 3) Suppose there are three economies with 3 different consumption functions: Country A: C = 100 + 0.8Y Country B: C = 200 + 0.75 Y Country C: C = 75 + 0.9Y In which of these countries is autonomous consumption the largest? 3 ) A) Country A B) Country BC) Country C D) All countries have the same autonomous consumption levels. JOJO5 YTIMUMMOD E Price level, P D AD 1 ADo -AD 2 Output, Y .noilsoup loss to bus and is babivong onifond nesstiof Figure 10.1 4) Refer to Figure 10.1. Suppose that the economy were at point A, and the government increases spending. In the short run, the economy will move to point 4 ) A) E. B) B. C) C. D) D. 5) Fiscal policy affects aggregate demand because 5 ) A) taxes affect corporate spending and so investment. B) taxes affect disposable income and so consumption. C) government purchases is a category of aggregate demand. D) all of the above 6) An increase in taxes or a decrease in spending will shift the 6) A) short-run aggregate supply curve to the right. B) aggregate demand curve to the left. C) aggregate demand curve to the right. D) short-run aggregate supply curve to the left. 7) If the economy finds itself at a point where planned spending is greater than output, then we will expect to see 7) A) a decrease in planned spending. B) a decrease in inventories. C) an increase in inventories. D) an equilibrium level of output. groundillups Bat naillim Ofe mer and Moillon s (Choilim ER Cinellifeliciab C + I Expenditures d wopobs ed live plaque ponom or ru signal 450 Output, y Figure 11.1 8) Refer to Figure 11.1. For the economy in general, which of the following points correspond to an equilibrium? 8)_ A)a B)b C)c D) a and d 9) Currency held by the public + demand deposits + traveler's checks + other checkable deposits = 9) A) M1. B) M3. C) M2 - M1. D) M3 - M1. 10) Which of the following is true when the U.S. dollar appreciates against the euro? 10) A) It takes fewer euros to buy the dollar. B) It takes fewer dollars to buy the euro. C) It becomes more expensive for Americans to buy goods from Germany. D) All of the above are correct. 11) Suppose the required reserve ratio is 20%. A $5 million deposit allows commercial banks to create a maximum total of _ in deposits. 11) A) $10 million B) $20 million C) $25 million D) $50 million 12) Which of the following will most likely cause a decrease in the quantity of money demanded? 12) A) an increase in the inflation rate B) an increase in income C) an increase in the interest rate D) all of the above D Interest rate (%) B M MoneyFigure 14.1 13) Refer to Figure 14.1. A movement from Point A to Point D can be caused by 13) A) a decrease in the price level. B) an increase in income. in the C) a decrease in the interest rate.D) an increase in the interest rate. in bank reserves and 14) An open-market purchase of government bonds by the Fed results in supply of money. 14 ) A) a decrease; an increase C) an increase; an increase B) a decrease; a decrease D) an increase; a decrease 15) Assume that the required reserve ratio is 20%. If the Fed sells $10 million worth of government bonds to the public, the maximum change in the money supply will be 15 ) A) less than 10 million. B) more than 10 million. C) $2 million. D) less than 2 million. 16) The discount rate is 16) A) the interest rate that the Fed charges commercial banks for funds borrowed from the Fed. B) the interest rate commercial banks charge each other for lending funds. C) the interest rate commercial banks charge their new customer. D) none of the above 17) When the Fed conducts open market sales, A) the Fed buys bonds from the private sector. 17 ) B) the Fed sells bonds to the private sector. C) commercial banks sell bonds to the private sector. D) commercial banks sell bonds to the Fed. % MS cummed morteboog vod of ansangonA To 29 morLemoned IT digit svode er to LLA (CT Interest rate, r nolllim oge (C noillin ase (O hoillion oke ( moillimofall 4 avoda selfto Herce - Md 600 800 1,200 Money, M Figure 14.4 18) Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, it needs to 18) A) increase Mid. B) sell government bonds. C) keep Mis constant. D) buy government bonds 19) Which of the following sequence of events would follow an open market sale of bonds? A) 1 interest rate - | investment - I aggregate demand - | real GDP 19) B) I interest rate - | investment - 1 aggregate demand - 1 real GDP C) I interest rate - | investment - 1 aggregate demand - | real GDP D) | interest rate - 1 investment - | aggregate demand - | real GDP VOHOMWhich of the following is true when the U.S. dollar depreciates against the euro? A) It takes fewer euros to buy the dollar. 20) 3) It becomes more expensive for Americans to buy goods from Germany. C) It takes more dollars to buy the euro. D) All of the above are correct. MOMS 1000 COS Interest rate (%) -Md 100 200 Money ($ million) Figure 14.6 21) Refer to Figure 14.6. If the money supply increases from M o to M ; 21) A) the interest rate will increase to 10%. B) the interest rate will decrease to 6%. C) the money market will return to equilibrium only if the money supply is reduced to its original level. D) money demand must decrease for the money market to return to equilibrium. 22) Printing money to finance budget deficits ultimately leads to 22) A) higher interest rates. B) lower levels of investment. C) inflation. D) a drop in the price level. 23) A decrease in government spending and an increase in taxes will cause the 23) A) budget deficit to increase B) government debt to increase. C) budget deficit to decrease. D) budget deficit to remain unchanged. 24) Which of the following sequence of events follows a rise in the discount rate? 24) A) | interest rate - 1 investment - | total demand - 1 real GDP B) | interest rate - | investment - 1 total demand - | real GDP C) 1 interest rate - | investment - | total demand - | real GDP D) 1 interest rate - | investment - | total demand - | real GDP 25) If the Fed were to focus only on inflation, 25) A) the private sector would become less responsive to the Fed's policies. B) its independence from political pressures would decrease. C) its capacity to fight recessions would be diminished. D) its credibility would be reduced. 26) The aggregate demand curve that shows the relationship between the price level and the quantity of real GDP demanded. 26) A) negative B) positive C) exponential D) linear 27) The four components of the aggregate demand curve are the same as the 27)A) components of real GDP. B) components of market demand. wollot erit to strings ") components of investment. D) components of aggregate supply. 28) The consumption function describes the relationship between consumption expenditures and 28) A) the level of prices. B) the level of income. C) the rate of growth of GDP. D) the level of the interest rates. 29) The marginal propensity to consume is 29) A) consumption divided by income. B) the change in consumption divided by the change in income. C) the change in consumption divided by the change in saving. D) the change in saving divided by the change in income. 30) If the flat tax is 27 percent, a person who makes $3,000 a month will have an income net of taxes equal to a month. 30) A) $270 B) $810 C) $2,190 D) $2,730 31) A) 1.15. 31) If the marginal propensity to save is 0.15, the marginal propensity to consume is B) 0.85. C) 0.15. D) The MPC cannot be determined by the given information. 32) A consumption tax is likely to increase savings as long as individuals 32) A) choose to retire later, so that their pension funds are taxed less severely. B) choose to transfer balances from saving accounts with no tax advantages into tax-favored investments. C) choose to consume less, even though the lower tax on savings makes them wealthier. D) choose to consume more, even though the lower tax on savings makes them less wealthy. 33) Suppose that the government debt is $100 million at the beginning of the year. If the government collects $45 million in taxes and incurs $50 million in expenditures this year, then the government is experiencing a and the debt will be at the end of the year. 33) A) deficit; $95 million B) deficit; $105 million C) surplus; $95 million D) surplus; $105 million 34) Budget deficits can lead to inflation if 34) A) government borrowing pushes up interest rates. B) crowding out occurs. C) the government monetizes the deficit. D) the debt to GDP rises. 35) Which of the following statements is true? 35) legbud A) A higher interest rate causes lower investment, higher demand, and higher real GDP. B) A higher interest rate causes higher investment, lower demand, and lower real GDP. C) A lower interest rate causes lower investment, higher demand, and higher real GDP. D) A higher interest rate causes lower investment, lower demand, and lower real GDP