MCQ

Use the following information to answer questions 1 - 4: C = 1000 + .75YD I = 500 G = 2000 T = 1000

1. The equilibrium level of GDP for the above economy equals:

A. 2500. B. 4500. C. 10000. D. 11000. E. none of the above.

2. The multiplier for the above economy equals:

A. 2. B. 3. C. 4. D. 5. E. none of the above.

3. Suppose government spending increases by 100 for the above economy. Given the above information, we know that equilibrium output will increase by:

A. 200. B. 400. C. 800. D. 1000. E. none of the above .

4. The equation for private (or, equivalently, household) saving in this model is S =:

A. -1000 + .25YD B. -1000 + .75YD C. -1000 - .25YD D. 3500 + .25Y E. 3500 + .75Y

5. The LM curve shifts down (or, equivalently, to the right) when which of the following occurs?

A. an increase in taxes. B. an increase in output. C. an open market sale of bonds by the central bank. D. an increase in consumer confidence. E. none of the above.

6. The IS curve will shift to the right when which of the following occurs?

A. an increase in the money supply. B. an increase in government spending. C. a reduction in the interest rate. D. all of the above. E. none of the above.

7. Okun's law relation for the United States is represented by which of the following? A. ut - ut-1 = - (gyt - 3%) B. ut - ut-1 = - (1/(3% - gyt) C. t - t-1 = - (ut - un) D. gyt = gmt - t E. none of the above

8. Which of the following will cause the money multiplier to become smaller?

A. an increase in high powered money. B. a decrease in the ratio of reserves to checkable deposits. C. an increase in the public's preference for checking deposits as opposed to holding currency. D. a reduction in high powered money. E. none of the above.

9. The money supply will tend to fall when which of the following occurs?

A. a central bank sale of bonds. B. a decrease in the ratio of reserves to deposits. C. a shift in public preferences away from currency to checkable deposits. D. all of the above. E. none of the above.

10. Calculate the user cost of capital of a machine that costs $5000 and depreciates at a rate of 25%, when the expected real interest rate is 5%

A. $150 B. $500 C. $1500 D. $15000 E. $5000