Assessment 1 - Macroeconomics.

1.Considering the money market in isolation, if real GDP increases in the short-run, then the equilibrium nominal interest rate will (A) _____ should the money stock be (B)_________ by the central bank.

Select one:

a. (A) rise; (B) held constant

b. (A) fall; (B) held constant

c. (A) fall; (B) decreased

2.The classical economists believed that,

Select one:

a. An economy in equilibrium could also be an economy with high unemployment.

b. Wages and salaries suffer from certain rigidities and would thus not move in a direction that would ensure full employment.

c. The government should intervene in order to reach full employment.

d. A competitive economy free of government intervention would result in full employment.

3.Suppose we were in a situation where the interest elasticity of investment is low, and money demand is very elastic. Which policy is more effective and why?

Select one:

a. Fiscal policy because less crowding out.

b. Monetary policy because the central bank could control the interest rate.

c. Fiscal policy because lower cost of borrowing

d. Monetary policy because more money to borrow in the market.

4.Which of the following statements about Monetarist is NOT TRUE?

Select one:

a. The supply of money is the dominant influence on nominal income.

b. The private sector is inherently stable in the economy.

c. In the long-run, output and employment are determined by the monetary factors.

d. Price and wages are not perfectly flexible in the short-run.

5.The following statements on the role of money are true, EXCEPT:

Select one:

a. Early Keynesian - The supply of money is unimportant

b. Keynesian - The supply of money is one of the components that influences aggregate demand

c. Monetarist - The supply of money is the dominant influence on nominal income

d. Monetarist - The supply of money is one of the components that influences aggregate demand

6.According to the Classical economists, which of the following measures by the Government WILL influence output and employment?

Select one:

a. cash transfers

b. a lump sum tax cut

c. road construction

d. a marginal tax cut

7.After a contractionary or expansionary fiscal policy,

Select one:

a. the LM curve shifts and we move along the IS curve.

b. neither the IS nor the LM curve shifts.

c. the IS curve shifts and we move along the LM curve.

d. both the IS and LM curves shift.

8.What is NOT a component of the GDP?

Select one:

a. Investment spending by firms on capital goods

b. Consumption goods

c. Public sector's own demand for goods

d. Employment rate

9.Assume that there is an exogenous increase in the price of imported oil. How does Keynesian explain the effect of the shock on output and the price level?

Select one:

a. Both output and price increases

b. Further decline in output due to a decrease in expected price level.

c. Further decline in output due to an increase in expected price level.

d. Both output and price decline

10. In short run macroeconomic analysis, demand is often viewed as the driving force. Which component of total demand is often regarded as being independent of economic conditions and thus exogenous in the model?

Select one:

a. Consumption and private spending

b. Government spending and tax receipts

c. Net exports

d. Investment, saving

11. After a monetary expansion, which of the following is a complete list of the variables that must increase?

Select one:

a. Consumption, output and investment.

b. Consumption

c. Consumption, output and the interest rate.

d. Consumption and investment

12. The critical macroeconomic policy implication of a vertical long-run Phillips Curve is that...

Select one:

a. ...inflation is everywhere and always a monetary phenomenon.

b. ...money illusion is the source of the unemployment in the long-run.

c. ...big inflations will be stopped by big recession.

d. ...demand policies cannot move the actual unemployment rate permanently away from its equilibrium level.

13. In the short run, there is a trade-off between (A) __________ and (B) ____________. In the long run, the trade-off disappears and monetary factors have no impact on (C) ____________ economic variables.

Select one:

a. (A) output; (B) inflation; (C) real

b. (A) output; (B) exports; (C) nominal

c. (A) trade; (B) profit margins; (C) real

d. (A) interest rates; (B) inflation; (C) nominal

14. According to the analysis of the British economist John Maynard Keynes, ...

Select one:

a. ...government demand could be used to smooth fluctuations in aggregate output and income.

b. ...economic fluctuations were the cumulative result of mistakes made by businesses and households in an uncertain world.

c. ...supply creates its own demand through the circular flow of economic activity.

d. ...markets coordinate supply and demand so that a policy of laissez-faire would prevent recessions.

15. What is elasticity of investment?

Select one:

a. The responsive of investment to exchange rate.

b. The responsive of investment to income.

c. The responsive of investment to aggregate price level.

d. The responsive of investment to interest rate.