In the early 1980's the Federal Reserve, under Paul Volcker, began a period of tight

money aimed at reducing inflation. Under this policy, nominal interest rates were:

A. higher in the short run and higher in the long run.

B. higher in the short run and lower in the long run.

C. lower in the short run and higher in the long run.

D. lower in the short run and lower in the long run.

49. In the quantity theory interpretation of the LM curve, the LM curve slopes up because

A. a higher inflation rate implies a higher interest rate.

B. velocity depends on the interest rate.

C. when income rises, a higher interest rate is necessary to equilibrate the money market.

D. for a given price level, the supply of money determines the level of income.

69. Which of the following is not typically a government objective?

a) Low unemployment

b) Fast economic growth

c) Stable prices

d) Greater regional income inequality

70. Which of the following is not an example of fiscal policy?

a) Higher interest rates

b) Lower income tax

c) Higher corporation tax

d) Greater government spending

71. The government's budget position measures the difference between:

a) Export spending and import spending

b) Government spending and income

c) Government consumption and investment

d) Consumption and savings

72. Monetary policy does not include:

a) Changes to the interest rate

b) Changes to bank lending

c) Changes to bank borrowing

d) Changes to taxation rates

73. The size of the money multiplier will be greatest when the reserve ratio is:

a) 0.1

b) 0.2

c) 0.3

d) 0.4

74. If the economy grows the government's budget position will automatically:

a) improve due to increased spending

b) worsen

c) improve due to greater tax revenues

d) stay the same

75. Higher interest rates:

a) Encourage borrowing

b) Encourage savings

c) Increase injections into the economy

d) Reduce withdrawals into the economy

76. Demand side policies are most likely to lead to inflation when:

a) They reduce aggregate demand

b) Aggregate supply is perfectly elastic

c) Aggregate supply is price elastic

d) The economy is at full employment

77. Quantitative easing is:

a) Part of trade policy

b) Part of fiscal policy

c) Part of monetary policy

d) Part of employment policy

78. Supply side policies would NOT include:

a) Lowering tax to boost spending

b) Incentives to get people back to work

c) Incentives to get firms to invest

d) Training to give people the skills to accept work

79. Unemployment benefits and income taxation are examples of...

a) ...uses and sources of seigniorage.

b) ...automatic stabilizers.

c) ...pro-cyclical fiscal policy instruments.

d) ...debt stabilization.

81. The government faces the following budget constraint: New debt plus (A) ____ must

equals the primary deficit plus (B)____.

a) (A) existing debt; (B) interest payment

b) (A) seigniorage; (B) existing debt

c) (A) government bonds held by foreigners; (B) interest payment

d) (A) seigniorage; (B) interest payment

82. Suppose your country's public debt to GDP ratio were exploding and you wished to

stabilize it. One of your advisers tells you that by monetizing the debt, you will save the

interest payment on the debt since you will pay zero percent on the monetary base you

create. The reason you fire your adviser is that...

a) ...GDP in the denominator of the ratio will fall too.

b) ...he clearly confused seigniorage with the inflation tax which is why his recommended policy

would fail.

c) ...this might help to stabilize the debt/GDP ratio but it definitely will give you inflation that is

exploding.

d) ...this is equivalent to defaulting on the sovereign debt which only postpones the debt to a later

period.

83. If a government defaults on the value of its debt by 3/4, this is the same as imposing a

____ tax on interest and repayment of the principal.

a) 25% = (1-3/4) times 100

b) 57% = 100 / (1+ 3/4)

c) 75% = (3/4) times 100

d) 133% = (4/3) times 100

84. By _____________ economists refer to an unanticipated inflation that reduces the real

value of outstanding government debt

a) seigniorage

b) the inflation tax

c) cost of inflation

d) unanticipated default

Governments have several functions, but which is certainly not an economic one?

a) Provision of public goods.

b) Redistribution of income.

c) Regulation of socially undesirable goods.

d) Macroeconomic stabilisation.

87. Public goods have two criteria, one of which is non-excludability. What does that mean?

a) It is not possible to exclude individuals from consumption.

b) It is not possible to produce them without externalities.

c) Consumption by one does not affect consumption of others.

d) A and C.