Question 31 Which of the following statements about financial assets is true? O The basic money supply, M1, includes only demand deposits and time deposits. O The basic money supply includes cash issued by the central bank, demand deposits, and time deposits. O The most liquid financial assets are cash and government bonds. O As nominal interest rates increase, the price of previously issued bonds falls. OAs interest rates increase, the opportunity cost of holding cash decreases. Question 32 Under which of these circumstances will the outstanding debt of Country X increase? Part of the outstanding debt of Country X is sold to citizens of other countries. O Interest rates increase and the price of bonds falls. O Country X has current expenditures that exceed current tax revenues. O The unemployment rate is falling, while the inflation rate is rising. O The economy has moved from a recession to a full-employment equilibrium.Question 33 Assume that marginal propensity to consume is 4/5 or 80%, what is the value of the spending multiplier and the tax multiplier? Spending Multiplier| Tax Multiplier Spending Multiplier| Tax Multiplier 4 5 O Spending Multiplier | Tax Multiplier 5 4 O Spending Multiplier Tax Multiplier 5 5 Spending Multiplier | Tax Multiplier Indeterminate 5Question 34 Which of the following concerning nominal and real GDP is true? O The sum of all transactions at the current prices will equal real expenditure. O The nominal value of all transactions uses past or constant prices to calculate their value. O Nominal values better capture the changes in living standards since inflation is excluded. O The real value of a sum of transactions will use current quantities but a constant set of prices. O Nominal values exclude price level changes, while real values include price level changes. Question 35 If the marginal propensity to consume is 9/10 (or 90%), what is the maximum combined change in aggregate demand that a $500 increase in government spending and a $300 decrease in taxes could cause? O $800 O $2,300 O $2,700 O $7,700 O $8,000Question 36 Use the graph to answer the question that follows. LRAS Price Level SRAS, 110 AD year 2 SRAS 100 - - - - - -- AD year 1 Qo Real GDP Based on the accompanying graph, assuming that the velocity of money is constant, between year 1 and year 2, which of the following statements must be true? O The money supply decreased between years 1 and 2. Potential real GDP increased by 110 percent O The money supply increased by 10 percent from year 1 to year 2 O Neither nominal GDP nor real GDP changed between years 1 and 2 O This economy has more cyclical unemployment in year 1 than in year 2Question 37 Which of the following policies is considered an expansionary "supply-side" initiative? O Increased transfer payments O Increased military spending O Open-market purchase of government bonds O Reduced regulation of business O Higher income taxes Question 38 Assume good Z is an inferior good sold in a perfectly competitive market. If the average income of consumers increases and the number of sellers increases, which of the following should occur? The equilibrium price and equilibrium quantity will decrease. O The equilibrium price will fall, and the impact on quantity is indeterminate. The equilibrium quantity will decrease, and the impact on price is indeterminate. O The equilibrium price will fall, and the equilibrium quantity will increase. The impact on both price and quantity must be indeterminate.Question 39 Assume an economy has the following data: Demand deposits $5,000 Time deposits $9,000 Circulating cash $3,000 Cash held by banks | $1,000 What is the value of M1 in this economy? O $3,000 O $6,000 O $8,000 O $17,000 O $18,000 Question 40 During the prior year, the nominal interest rate was 10% while borrowers received a real return of 3%. What must have been the rate of inflation during that time period? O 3% O 7% O 10% O 13% Cannot determineQuestion 41 Which combination of fiscal policies would be most effective in addressing an inflationary gap? O Decrease government spending and the central bank sells government bonds Decrease government spending and increase income taxes Increase government spending and decrease transfer payments O Central bank buys government bonds and decrease taxes Increase government spending and increase taxes by the same amount Question 42 Which of the following will lead to a decrease in the demand for money? QA higher nominal interest rate A reduction in the money supply A higher price level in the economy OA higher real GDP O A reduction in average household incomeQuestion 43 Which is the most expansionary combination of fiscal policies? Central bank buying government bonds and Congress lowering taxes Increasing government spending and increasing transfer payments Increasing tax and increasing government spending by the same amount Lowering taxes and lowering transfer payments by equal amounts Lowering the required reserve ratio for commercial banks and lowering taxesQuestion 44 Use the graph to answer the question that follows. Dollar per Euro $1 E $0.50 Eo D' D Euros The accompanying graph of the market for the euro shows a change in the equilibrium from EO to E1, with a change in the equilibrium dollar price of a euro. Which of the following statements is consistent with this change? O Europeans are importing more goods from the United States, and the euro has depreciated. O Higher real interest rates in the United States have led to an appreciation of the dollar. O U.S. citizens are traveling more to Europe, appreciating the euro. O Higher average incomes in Europe are leading to more exports from Europe and an appreciated euro. O Americans are consuming fewer goods from Europe, depreciating the euro.Question 45 Which of the following tends to increase productivity per worker? O Higher inflation O Education and training O Reduced unemployment O Increased government spending O Higher labor force participation rate Question 46 Assume that a commercial bank has demand deposits of $1,000,000 and cash reserves of $150,000. If the required reserve ratio is 10%, which of the following is true? O This bank has inadequate reserves, given its demand deposits. O This bank must keep demand deposits of at least $150,000. O This bank has excess reserves of $100,000. O This bank's required reserves equal $100,000. This bank must reduce its demand deposits to comply with the reserve requirement