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Economics
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23 Nov 2019

  1. According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will

a. increase and the quantity of money demanded will decrease.

b. increase and the quantity of money demanded will increase.

c. decrease and the quantity of money demanded will decrease.

d. decrease and the quantity of money demanded will increase.

2. Fiscal policy makers are working to increase Aggregate Demand to the greatest extent they can. They have $100 Billion dollars at their disposal. If the Marginal Propensity to Consume is 2/3, then ceteris paribus, the most appropriate policy recommendation these individuals can and should make would be:

a. Reduce net exports by $100 Billion

b. Increase the Money Supply by $100 Billion.

c. Increase Government Purchases by $100 Billion

d. Cut taxes by $100 Billion

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Irving HeathcoteLv2
22 Apr 2019
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Related textbook solutions

Principles of Economics
2nd Edition, 2017
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ISBN: 9781947172364
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Related questions

Refer to the data below.

Real Output Demanded, Billions

Price Level

Real Output Supplied, Billions

$506

108

513

508

104

512

510

100

510

512

96

507

514

92

502

a. What is the equilibrium level of output?

What is the equilibrium price level?

b. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Insert the new values for real output demanded in the table below.

Real Output Demanded, Billions

New Real Output Demanded, Billions

Price Level

Real Output Supplied, Billions

$506

______________

108

513

508

______________

104

512

510

______________

100

510

512

______________

96

507

514

______________

92

502

What is the new equilibrium level of output?

What is the new equilibrium price level?

By what percentage will the price level increase?

Will this inflation be demand-pull inflation or will it be cost-push inflation?

c. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand?

d. If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?

5. Fiscal policy is enacted through changes in

A. interest rates and the price level.

B. the supply of money and foreign exchange.

C. unemployment and inflation

D. taxation and government spending. 

 

6. In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

A. increase taxes by $16 billion.

B. increase taxes by $24 billion.

C. decrease government spending by $10 billion.

D. decrease government spending by $16 billion.

 

7. If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

A. contractionary fiscal policy.

B. no change in fiscal policy.

C. expansionary fiscal policy.

D. countercyclical fiscal policy.

 

8. Most economists believe that fiscal policy is:

A. better than the monetary policy for "fine-tuning" the economy.

B. better than the monetary policy for month-to-month stabilization.

C. not as good as the monetary policy for month-to-month stabilization.

D. not very good at pushing the economy in a particular direction.

 

9. An increase in the legal reserve ratio

A. increases the money supply by increasing excess reserves

B. decreases the money supply by decreasing excess reserves

C. increases the money supply by decreasing excess reserves

D. decreases the money supply by increasing excess reserves

 

10. The discount rate is the rate of interest at which

A. Federal Reserve Banks lend to commercial banks

B. savings and loan associations lend to some builders

C. Federal Reserve Banks lend to large corporations.

D. commercial banks lend to large corporations

 

11. Which of the following actions by the Fed most likely increase commercial bank lending?

A. raising the reserve ratio

B. increasing the federal funds rate target

C. reducing the interest paid on excess reserves held at the Fed

D. selling bonds to commercial banks and the public

 

12. Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ______, which will ______ investment spending.

A. decrease; decrease

B. decrease; increase

C. increase; increase

D. increase; decrease 

 

When demand for a good is very elastic, revenue ________ when the price falls.

(2)

An elasticity measure less than one means that demand is __________.

(3)

An elasticity measure greater than one means that demand is __________.

(4)

The Latin expression ceteris paribus means

having made all other necessary changes.

holding constant all other variables.

assuming all households have similar incomes.

given the level of income in the economy.

(5)

A variable measured in terms of money is called a ____________________.

real variable

nominal variable

macroeconomic variable

microeconomic variable

(6)

Which of the following is true about the importance of money in economics?

Money is important in both macroeconomics and microeconomics.

Money is important in macroeconomics but not microeconomics.

Money is important in microeconomics but not macroeconomics.

Money is not important in either microeconomics or macroeconomics.

(7)

What is the difference between normative and positive economics?

Positive economics is descriptive and predictive; normative economics is prescriptive.

Positive economics highlights the positive aspects of the economy; normative economics highlights the average features.

Positive economics studies the actions of individuals; normative economics studies the actions of households.

Positive economics is an applied social science; normative economics is a theoretical social science.

(8)

The slope of the demand curve is negative because

the quantity of a good demanded decreases as income declines.

the quantity of a good demanded increases as income declines.

the quantity of a good demanded increases as the price declines.

the quantity of a good demanded decreases as the price declines.

(9)

What is the result of an increase in the price of bread, a normal good?

The demand curve shifts to the right.

The demand curve shifts to the left.

The quantity demanded increases.

The quantity demanded decreases.

(10)

What is the effect on demand for bread when the price of bagels, a substitute for bread, rises?

The demand curve for bread shifts to the right.

The demand curve for bread shifts to the left.

The quantity of bread demanded increases.

The quantity of bread demanded decreases.

(11)

Which of the following would cause the supply curve for bread to shift inward?

An increase in the price of bread

An increase in the price of bagels

A decrease in the price of bread

An increase in the price of flour

(12)

An improvement in technology shifts the supply curve outward because

at every price, firms find producing the good to be more profitable.

the price of the good increases.

at every price, firms find producing the good to be less profitable.

the price of the good decreases.

(13)

Which of the following factors does not affect how much bread a baker is willing to produce?

The price of bread

The demand for bread

The cost of inputs

Technology

(14)

How do expectations of prices affect how much of a good producers are willing to sell?

Expectations of prices affect only demand, not supply.

Actual prices, not expectations of prices, affect supply.

If producers expect prices to fall in the future, they supply less at every price.

If producers expect prices to rise in the future, they supply less at every price.

(15)

When the price of a good is above equilibrium level,

the quantity demanded exceeds the quantity supplied.

the quantity supplied exceeds the quantity demanded.

the supply curve shifts to the left.

the supply curve shifts to the right.

(16)

At a price of P0 in the diagram below, which of the following statements is true?

Supply equals demand.

There is excess demand.

There is excess supply.

There is scarcity.

(17)

If demand for bread increases at every price, the equilibrium price of bread will

fall.

rise.

remain unchanged.

depend on income.

(18)

If the demand for bread declines, then

at the original equilibrium price, there is excess demand.

at the original equilibrium price, there is excess supply.

the supply curve shifts to the right.

the supply curve shifts to the left.

(19)

Peanut butter and jelly are complementary goods. When the price of peanut butter rises, the demand for jelly ________ and the price of jelly ________.

rises; falls

rises; rises

falls; rises

falls; falls

(20)

The measure of elasticity that economists use is

always a positive number.

always a negative number.

positive when demand is elastic and negative when demand is inelastic.

negative when demand is elastic and positive when demand is inelastic.

(21)

Which of the following formulas is the correct expression for the slope of a line?

(22)

Graphically how would an increase in income affect the demand for hamburgers?

The slope of the demand curve would increase.

The slope of the demand curve would decrease.

The demand curve would shift outward, parallel to the original demand curve.

The demand curve would shift inward, parallel to the original demand curve.

(23)

Given the equation P = $6.00 ? $.40Q, where P is the price of the good and Q is the quantity of the good demanded, how many units will this consumer demand if the price is $3.60?

1.44 units

3 units

3.6 units

6 units

(24)

Which of the following is true about unit elasticity?

Revenues remain unchanged when the price changes.

Elasticity of demand increases as one moves down the demand curve.

Elasticity of demand decreases as one moves down the demand curve.

The elasticity of demand is greater than one at every point along the demand curve.

(25)

Which of the following could be a determinant of the quantity demanded of a good?

The price of the good

The price of related goods

Income

Expectations about the future price of the product

All of the above

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