Question one.

1.Which of the following is a positive statement?

a.If inflation increases, employment increases.

b.If employment increases, inflation increases.

c.Measures should be taken to rid the economy of inflation.

d.all of the above.

e.both a) and b) are correct.

2.Fiscal policy can be divided into

a.expansionary and contractionary.

b.discretionary and automatic stabilizers.

c.easy money and tight money.

d.both a) and b) are correct.

3.An automatic stabilizer

a.requires Congressional and Presidential approval each time the unemployment rate increases by apercentage point.

b.automatically dampens the swings in the business cycle.

c.both increases and decreases the money supply as needed.

d.all of the above.

e.both a) and b) are correct.

4.If the economy is spending $20B and needs to be spending $30B for full employment, then a government increase of $2B is needed for full employment if the multiplier is

a.2

b.3

c.4

d.5

e.6

5.If the multiplier is 2, then the MPC is ______ percent, and the MPS is _______ percent.

a.0 // 100

b.100 // 0

c.50 // 50

d.80 // 20

6.A tax multiplier is a ________ number than the spending multiplier and applies to _________.

a.smaller // money supply changes only

b.smaller // tax changes only

c.larger // money supply changes

d.larger // tax changes only

e.smaller // both spending and tax and money supply changes

7.Adding additional members of the family to the labor force

a.decreases the unemployment rate.

b.can increase economic growth, especially if productivity is not growing.

c.automatically increases productivity.

d.automatically decreases productivity.

8.In the discussion of the article on the decoupling of wages and productivity, which of following pairs of scenarios were discussed and diagramed in class?

a.all wage income being transferred to capital & all capital income being transferred to labor

b.all wage income being transferred to high wage earners & all high wage income being transferred to capital

c.increases in income from growth going equally to capital and labor & increases in income from growth going mainly to capital.

d.increases in income from growth going mainly to capital & increases in income from growth going mainly to high wage earners.

e.both c) and d) are correct.

9.Higher taxes and less government spending may be implemented in order to lower the deficit. This is a __________ fiscal policy, which could cause a recession.It will then lead to lower tax collections and higher transfer payments, which will ______ the deficit.

a.contractionary // increase

b.contractionary // decrease

c.expansionary // increase

d.expansionary // decrease

10.You deposit $100,000 in a bank, and the reserve ratio is 10 percent. The bank can expand its loans by ________, and the money supply can increase by as much as ________.

a.$80,000 // $800,000

b.$10,000 // $100,000

c.$90,000 // $1,000,000

d.$90,000 // $900,000

11.The Fed engages in open market operations and sells government securities. The result is

a.lower interest rates.

b.higher interest rates.

c.interest rates remain unchanged since there is no reason to think bond prices changed.

d.uncertain since more information is needed.

12.The supply for money model is drawn as a ___________ line based on the assumption that the _______ determine(s) the money supply.

a.vertical // consumer need for cash

b.vertical // Federal Reserve Bank

c.upward sloping line // President and Congress

d.horizontal // Federal Reserve Bank

15.Changes in which of the following will cause a change in exchange rates?

a.real interest rates

b.consumer preferences

c.inflation rates

d.all of the above

16.A strong dollar benefits

a.all Americans.

b.no one except those living in Europe.

c.Americans buying imports and traveling abroad.

d.U.S. firms selling goods in a competitive international market.

e.neighborhood shopping centers.

17.The "Schools of Thought" handout shows

a.Keynesian macroeconomics is correct.

b.non-Keynesian ways of thinking about macroeconomics.

c.that laissez-faire should always be used except during times of war.

d.all of the above.

18.Money demand occurs because people ____________ and will pay a price for it known as the interest rate. This ______ true for those who hold high sums of money in a checking and savings account.

a.have insufficient income for many of their needs // is also

b.have insufficient income for many of their needs // is not

c.need to have a certain amount of liquidity since non-liquid assets cannot be easily traded // is also

d.need to have a certain amount of liquidity since non-liquid assets cannot be easily traded // is not

19.Which part of the money supply equation represents aggregate demand?

a.M

b.MV

c.PQ

d.MV = PQ

20.What assumptions are made about the equation MV = PQ?

a.Velocity and output are constant.

b.Velocity and output are often changing.

c.Velocity changes but not output.

d.Output changes but not velocity.

e.The general price level has little to do with the money supply.

21.The accelerationism model is an alternative interpretation of the

a.supply-side Laffer curve, which shows optimal tax rates

b.Phillips' Curve model, which shows the unemployment/inflation tradeoff

c.Phillips' Curve model, which emphasizes the relationship between the money supply, velocity, and inflation

d.aggregate demand & aggregate supply model , which shows that only in the Keynesian range can spending increase without inflation

22.The accelerationism model says that fiscal and monetary policy

a.can affect the level of employment both in the shortrun and longrun.

b.can never affect the level of employment.

c.can affect the level of employment only in the shortrun.

d.can affect the level of employment only in the longrun.

23.The natural rate of unemployment can occur

a.at any inflation rate.

b.only with low inflation rates.

c.only with high inflation rates.

d.only with zero inflation.

24.The natural rate of unemployment

a.can change in quantity through fiscal and monetary policy.

b.can change in quantity but by some other means than fiscal and monetary policy.

c.can change in quantity with a shift of the aggregate demand curve

d.can never change in quantity.

25.Which school of thought can be considered a rebuttal to the nonactivist schools of thought?

a.supply side economics

b.traditional Keynesian economics

c.new Keynesian economics

d.accelerationism

26.Menu costs refers to

a.the difficulty of changing computer software.

b.prices on a restaurant menu.

c.the costs involved in changing prices.

d.all of the above.

e.both a) and b) are correct.

27.Menu costs present a challenge in responding to changes in supply and demand. This has something in common with

a.the implications of MV = PQ.

b.efficiency wages.

c.the follies of using fiscal and monetary policy to stimulate aggregate demand.

d.structural unemployment.

28.Fiscal policy refers to the idea that total economic output and unemployment can be affected by changes

a.in the money supply.

b.in government spending and taxes.

c.in trade policy.

d.none of the above is correct.

29.Which of the following is not included in M1?

a.

a $50 bill in your wallet.

b.

$50 in your checking account.

c.

$50 in your savings account.

d.

a $50 bill in your friend's wallet.

30.An open market purchase of government bonds by the Federal Reserve results in __________ in the supply of money and __________ in interest rates.

a.

an increase; a decrease.

b.

a decrease; a decrease.

c.

an increase; an increase.

d.

a decrease; an increase.

31.When the U.S. central bank, the Federal Reserve, increases the supply of money:

a. U.S. interest rates fall which cause the U.S. dollar to depreciate against other currencies.

b. U.S. interest rates rise which cause the U.S. dollar to depreciate against other currencies.

c. U.S. interest rates fall which cause the U.S. dollar to appreciate against other currencies.

d. U.S. interest rates rise which cause the U.S. dollar to appreciate against other currencies.

32.Other things the same, if the exchange rate changes from 120 yen per dollar to 100 yen per dollar

a. Japanese made products will become cheaper for U.S. consumers.

b. U.S. made products will become cheaper for Japanese consumers.

c.exports from the U.S. to Japan will fall.

d.exports from Japan to the U.S. will rise.

33.Which of the following will result in a long-run increase in the U.S. GDP?

a.An increase in the U.S. labor force.

b.An increase in the U.S. capital stock.

c.An increase in innovations in the U.S.

d.All of the above.

34.If the United States had negative net exports last year, then it

a.sold more abroad than it purchased abroad and had a trade surplus.

b.sold more abroad than it purchased abroad and had a trade deficit.

c.bought more abroad than it sold abroad and had a trade surplus.

d.bought more abroad than it sold abroad and had a trade deficit.

35.The short-run aggregate supply curve can go beyond full employment. The least likely way to do it is

a.offer overtime.

b.hire temporary workers.

c.acquire more land.

d.defer taking machines out of commission for maintenance for a short while if possible.

36.The curve/line which also doubles as the full employment supply line is

a.the short run aggregate supply curve.

b.the long-run aggregate supply curve.

c.the aggregate demand curve.

d.both b) and c) are correct.

37.The line which forms a 45-degree angle in the Keynesian cross model is

a.aggregate supply line.

b.income line.

c.aggregate demand line.

d.both a) and b) are correct.

38.The slope of the consumption function is also known as

a.the marginal propensity to consume.

b.the average propensity to consume.

c.the multiplier.

d.all of the above.

39.Which model can show both unemployment and inflation occurring at the same time?

a.aggregate demand and aggregate supply model with the three range aggregate supply curve

b.the Keynesian cross model

c.both of these.