Macroceonomics homework
Please choose the most appropriate answer to each question.
1. The aggregate demand curve shows the:
A. Inverse relationship between the price level and the quantity of real GDP purchased
B. Direct relationship between the price level and the quantity of real GDP produced
C. Inverse relationship between interest rates and the quantity of real GDP produced
D. Direct relationship between real-balances and the quantity of real GDP purchased
2. The following factors explain the inverse relationship between the price level and the total demand for output, except:
A. A substitution effect
B. A real-balances effect
C. An interest-rate effect
D. A foreign-purchases effect
3. When the price level decreases:
A. The demand for money falls and the interest rate falls
B. Holders of financial assets with fixed money values decrease their spending
C. Holders of financial assets with fixed money values have less purchasing power
D. There is a decrease in consumer spending that is sensitive to changes in interest rates
4. The foreign purchases effect on aggregate demand suggests that a:
A. Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand
B. Fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand
C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand
D. Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand
5. The interest rate effect on aggregate demand indicates that a(n):
A. Decrease in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending
B. Decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending
C. Increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending
D. Increase in the supply of money will increase interest rates and decrease interest-sensitive consumption and investment spending
6. The real-balances effect on aggregate demand suggests that a:
A. Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending
B. Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending
C. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending
D. Higher price level will increase the real value of many financial assets and therefore cause an increase in spending
7. The foreign purchases, interest rate, and real-balances effects explain why the:
A. Aggregate demand curve is downward-sloping
B. Aggregate demand curve may shift to the left or right
C. Economy will adjust towards equilibrium
D. Aggregate expenditures schedule may shift up or down
8. A decrease in interest rates caused by a change in the price level would cause a(n):
A. Decrease (or shift left) in aggregate demand
B. Increase (or shift right) in aggregate demand
C. Decrease in the quantity of real output demanded (or movement up along AD)
D. Increase in the quantity of real output demanded (or movement down along AD)
9. An increase in personal income tax rates will cause a(n):
A. Decrease (or shift left) in aggregate demand
B. Increase (or shift right) in aggregate demand
C. Decrease in the quantity of real output demanded (or movement up along AD)
D. Increase in the quantity of real output demanded (or movement down along AD)
10. A decrease in expected returns on investment will most likely shift the AD curve to the:
A. Right because C will increase
B. Left because C will decrease
C. Right because I will increase
D. Left because I will decrease
11. An increase in personal income taxes would shift AD to the:
A. Right because C will increase
B. Left because C will decrease
C. Right because G will increase
D. Left because G will decrease
12. An increase in expected future income will:
A. Increase aggregate demand and aggregate supply
B. Decrease aggregate demand and aggregate supply
C. Increase aggregate supply
D. Increase aggregate demand
13. A decrease in government spending will cause a(n):
A. Increase in the quantity of real output demanded
B. Decrease in the quantity of real output demanded
C. Decrease in aggregate demand
D. Increase in aggregate demand
14. If the dollar appreciates in value relative to foreign currencies:
A. Aggregate demand decreases because C decreases
B. Aggregate demand increases because C increases
C. Aggregate demand decreases because net exports decrease
D. Aggregate demand increases because net exports increase
15. If the national incomes of our trading partners increase, then our:
A. Aggregate demand decreases because C decreases
B. Aggregate demand increases because C increases
C. Aggregate demand decreases because net exports decrease
D. Aggregate demand increases because net exports increase
Use the following graph to answer questions 16 through 18
16. Refer to the graph above. Which of the following factors will shift AD1 to AD2?
A. A decrease in the general price level
B. An increase in real interest rates
C. An increase in national incomes abroad
D. A decrease in the value of financial assets
17. Refer to the graph above. Which of the following factors will shift AD1 to AD3?
A. An increase in expected returns on investment
B. An increase in productivity
C. A decrease in real interest rates
D. A decrease in consumer wealth
18. Refer to the graph above. Which of the following changes will shift AD1 to AD2?
A. A cut in personal and business taxes
B. An increase in the value of the dollar relative to other currencies
C. A shrinkage in the value of stocks and other financial assets
D. An increase in real interest rates
19. An aggregate supply curve represents the relationship between the:
A. Price level and the buying of real domestic output
B. Price level and the production of real domestic output
C. Real domestic output bought and the real domestic output sold
D. Price level that producers are willing to accept and the price level buyers are willing to pay
20. The immediate-short-run aggregate supply curve is:
A. Vertical
B. Horizontal
C. Upward-sloping
D. Downward-sloping
21. The upward slope of the short-run aggregate supply curve is based on the assumption that:
A. Wages and other resource prices do not respond to price level changes
B. Wages and other resource prices do respond to price level changes
C. Prices of output do not respond to price level changes
D. Prices of inputs flexible while prices of outputs are fixed
22. The short-run aggregate supply curve shows the:
A. Inverse relationship between the price level and real GDP purchased
B. Inverse relationship between the price level and real GDP produced
C. Direct relationship between the price level and real GDP produced
D. Direct relationship between the price level and real GDP purchased
23. The long-run aggregate supply curve is:
A. Upward-sloping and becomes steeper at output levels above the full-employment output
B. Upward-sloping and becomes flatter at output levels above the full-employment output
C. Horizontal
D. Vertical
24. The long-run aggregate supply analysis assumes that:
A. Input prices are fixed while product prices are variable
B. Input prices are variable while product prices are fixed
C. Both input and product prices are variable
D. Both input and product prices are fixed
25. A fall in labor costs will cause aggregate:
A. Supply to increase
B. Demand to increase
C. Supply to decrease
D. Demand to decrease
26. An increase in productivity will:
A. Increase aggregate demand
B. Increase aggregate supply
C. Increase aggregate supply and aggregate demand
D. Decrease aggregate supply and aggregate demand
27. If the price of crude oil decreases, then this would most likely:
A. Decrease aggregate supply in the U.S.
B. Increase aggregate supply in the U.S.
C. Increase aggregate demand in the U.S.
D. Decrease aggregate demand in the U.S.
Use the following graph to answer questions 28 through 29
28. Refer to the graph above. Which of the following factors will shift AS1 to AS2?
A. An increase in real interest rates
B. A decrease in business subsidies
C. An increase in input prices
D. A decrease in business taxes
29. Refer to the graph above. Which of the following factors will shift AS1 to AS3?
A. An increase in productivity
B. An increase in input prices
C. A decrease in business taxes
D. A decrease in household indebtedness
30. If Congress passed new laws significantly increasing the regulation of business, this action would tend to:
A. Increase per-unit production costs and shift the aggregate supply curve to the left
B. Increase per-unit production costs and shift the aggregate supply curve to the right
C. Increase per-unit production costs and shift the aggregate demand curve to the left
D. Decrease per-unit production costs and shift the aggregate supply curve to the left
31. A decrease in business taxes will tend to:
A. Increase aggregate demand but not change aggregate supply
B. Increase aggregate supply but not change aggregate demand
C. Increase aggregate demand and increase aggregate supply
D. Decrease aggregate supply and decrease aggregate demand
Use the following graph to answer question 32
32. Refer to the graph above. The equilibrium for this economy is:
A. At point a
B. At point b
C. At price level P2 and output Q2
D. At price level P1 and output Q1
33. A decrease in aggregate demand in the short run will reduce:
A. Both real output and the price level
B. The price level and increase the real domestic output
C. The real domestic output and have no effect on the price level
D. The price level and have no effect on real domestic output
34. Demand-pull inflation is illustrated in the short run aggregate supply-aggregate demand model as a shift of the aggregate:
A. Supply to the right
B. Supply to the left
C. Demand to the right
D. Demand to the left
Use the following graph to answer questions 35 through 37
35. Refer to the figure above. If AD1 shifts to AD2, then the equilibrium output:
A. Increases from Q1 to Q3 while the price level falls from P2 to P1
B. Increases from Q1 to Q2 while the price level falls from P2 to P1
C. Increases from Q1 to Q3 while the price level rises from P1 to P2
D. Increases from Q1 to Q2 while the price level rises from P1 to P2
36. Refer to the figure above. A shift from AD1 shifts to AD2 would be consistent with what economic event in U.S. history?
A. Demand-pull inflation in the late 1960s
B. Cost-push inflation in the mid-1970s
C. Full-employment in the late 1990s
D. Recession in 2007-09
37. Refer to the figure above. A shift from AD2 to AD1 would be consistent with what economic event in U.S. history?
A. World War II in the 1940s
B. Cost-push inflation in the mid-1970s
C. Demand-pull inflation in the late 1960s
D. Great Recession of 2007-2009
Use the following graph to answer question 38
38. Refer to the figure above. The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to “overfull” employment. This situation can be best illustrated in the figure above as a:
A. Shift from AD2 to AD1
B. Shift from AD1 to AD2
C. Movement along AD1 from Q4 to Q1
D. Movement along AD2 from Q2 to Q3
Use the following graph to answer questions 39 through 40
39. Refer to the graph above. If aggregate supply shifts from AS1 to AS2, then the price level will:
A. Increase and real domestic output will increase
B. Decrease and real domestic output will increase
C. Increase and real domestic output will decrease
D. Decrease and real domestic output will decrease
40. Refer to the graph above. A shift from AS1 to AS2 would be consistent with what economic event in U.S. history?
A. Demand-pull inflation in the late 1960s
B. Cost-push inflation in the mid-1970s
C. Full-employment in the late 1990s
D. Great Recession in 2007-2009
41. Menu costs will:
A. Increase the amount of training of workers
B. Result in price wars between businesses
C. Increase the legal minimum wage
D. Make prices inflexible downward
42. Wage contracts, efficiency wages, and the minimum wage are explanations for why:
A. Competition results in price wars
B. Wages tend to be inflexible downward
C. The aggregate demand curve slopes downward
D. There is little support for the existence of a real-balances effect
43. In the mid-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. would experience:
A. Cost-push inflation and rising output
B. Demand-pull inflation and rising output
C. Cost-push inflation and falling output
D. Demand-pull inflation and falling output
44. Government actions that were taken in order to stimulate the economy during the Great Recession of 2007-09 included the following, except:
A. A significant reduction of interest rates to nearly zero
B. A large increase in transfer payments
C. An increase in the deficit-spending of the government
D. A sharp increase in the natural rate of unemployment
45. The stimulus package that the government implemented during the Great Recession of 2007-09 did not have as strong an impact on GDP and unemployment as expected, for the following reasons, except:
A. Very high debt levels of households
B. Consumers raised their saving rates
C. The stimulus package caused prices to fall in many sectors
D. The effects of the stimulus package were diffuse and spread thinly among many sectors
46. When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:
A. Active Monetary Policy
B. Automatic Fiscal Policy
C. Discretionary Fiscal Policy
D. Active Federal Policy
47. 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
48. If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):
A. Supply-side fiscal policy
B. Expansionary fiscal policy
C. Contractionary fiscal policy
D. Nondiscretionary fiscal policy
Use the graph to answer questions 49 and 50
49. Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2?
A. An increase in taxes and an increase in government spending
B. A decrease in taxes and an increase in government spending
C. An increase in taxes and no change in government spending
D. A decrease in taxes and a decrease in government spending
50. Refer to the above graph. What combination would most likely cause a shift from AD1 to AD3?
A. An increase in taxes and an increase in government spending
B. A decrease in taxes and an increase in government spending
C. An increase in taxes and a decrease in government spending
D. A decrease in taxes and a decrease in government spending
51. If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:
A. Increased government spending or increased taxation, or a combination of the two actions
B. Increased government spending or decreased taxation, or a combination of the two actions
C. Increased government spending or increased taxation, but not a combination of the two actions
D. Decreased government spending or decreased taxation, or a combination of the two actions
52. A consumer holds money to meet spending needs. This would be an example of the:
A. Use of money as a measure of value
B. Use of money as legal tender
C. Liquidity demand, also known as transactions demand for money
D. Asset demand for money
Use the graph to answer question 53
53. Refer to the graph above. If the supply of money was $200 billion, the interest rate would be:
A. 1 percent
B. 2 percent
C. 3 percent
D. 4 percent
54. The conduct of monetary policy in the United States is the main responsibility of the:
A. U.S. Treasury
B. Federal Reserve System
C. Office of Management and Budget
D. Bureau of Economic Analysis
55. The fundamental objective of monetary policy is to assist the economy in achieving:
A. A rapid pace of economic growth
B. A money supply which is based on the gold standard
C. A full-employment, noninflationary level of total output
D. A balanced-budget consistent with full-employment
56. The purchase and sale of government securities by the Fed is called:
A. Federal funds market
B. Open market operations
C. Money market transactions
D. Term auction facility
57. The interest rate that banks charge each other for over-night loans to each other, which is also the Feds policy target, is called:
A. The discount rate
B. Interest on reserves
C. The federal funds rate
D. The prime rate
58. If the Fed buys government securities from commercial banks in the open market:
A. The Fed gives the securities to the commercial banks and increases the banks’ reserves
B. The Fed gives the securities to the commercial banks decreases the banks’ reserves
C. Commercial banks give the securities to the Fed, and the Fed increases the banks’ reserves
D. Commercial banks give the securities to the Fed, and the Fed decreases the banks’ reserves
59. Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the:
A. Prime rate
B. Federal funds rate
C. Discount rate
D. Consumer price index
60. A newspaper headline reads: “Fed Cuts Federal Funds Rate for Fifth Time This Year.” This headline indicates that the Federal Reserve is most likely trying to:
A. Reduce inflation in the economy
B. Raise interest rates
C. Ease monetary policy
D. Tighten monetary policy
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