Econ Chapter 12

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Econ Chapter 12

  
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  • 1. 
    Barter is a system of
    • A. 

      Trade with one good being traded directly for another

    • B. 

      Double coincidence of wants

    • C. 

      Trade without using money as a intermediate step

    • D. 

      All of the above


  • 2. 
    Money is an imperfect store of value when
    • A. 

      The unemployment rate is high

    • B. 

      Banks are failing at an abnormally high rate

    • C. 

      The rate of inflation is very high

    • D. 

      Gold can be purchased at bargain prices

    • E. 

      All of the above


  • 3. 
    The type of money in circulation in the contemporary united states is almost entirely
    • A. 

      Fiat money

    • B. 

      Commodity money

    • C. 

      Divisible money

    • D. 

      Trade money

    • E. 

      All of the above


  • 4. 
    Liquidity refers to 
    • A. 

      The ease with which an item of value can be converted into cash

    • B. 

      Rapidity with which money flows through the economy

    • C. 

      The way in which banks will transfer balances from checking to saving and back

    • D. 

      All of the above


  • 5. 
    The definition of the money supple that includes coine, paper money, travelers' checks, checking accounts in commerical banks, Now accounts, and checkable deposits at credit unions is knows as
    • A. 

      M1

    • B. 

      M2

    • C. 

      M3

    • D. 

      L


  • 6. 
    Credit Cards are
    • A. 

      Included in the M1 definiton of the money supply

    • B. 

      Included in the M2 defintion of the money supply

    • C. 

      Included in the M3 definition of the money supply

    • D. 

      Included only in the broadest definiton of the money supply

    • E. 

      Not included in the definition of the money supply


  • 7. 
    One difference between the items in M1 and those which are added to compute M2 is that
    • A. 

      Items in M1 are better stores of value than those which are added to compute M2

    • B. 

      Items in M1 are cash or more easily converted into cash than the other items

    • C. 

      Items in M1 are less "liquid" than those which are added to compute m2

    • D. 

      Items in M1 are larger in size than those which are added to compute M2

    • E. 

      All of the above


  • 8. 
    The disctinction between M1 and M2 is based on
    • A. 

      Liquidity

    • B. 

      Storeability

    • C. 

      Dividibility

    • D. 

      Portability

    • E. 

      All of the above


  • 9. 
    The early goldsmiths issues money in the form of 
    • A. 

      Coins struck from gold in their vaults

    • B. 

      Gold shavings left from the process of making gold jewerly

    • C. 

      Receipts for the acceptance of certain quantities of gold

    • D. 

      Fully backed paper bank notes


  • 10. 
    An important effect of fractional reserve banking is that bankers have
    • A. 

      Some discretion over the money supply

    • B. 

      Little control over total reserves

    • C. 

      Total control over the amount of lending in the economy

    • D. 

      No control over the amount of deposits in the banking system

    • E. 

      All of the above


  • 11. 
    Under fractional reserve banking, when a bank lends to a customes
    • A. 

      Bank credit decreases

    • B. 

      Reserves drain away from the system

    • C. 

      The bank is protected from a run

    • D. 

      The money supply increases

    • E. 

      Bank profitibility is decreased


  • 12. 
    Excess reserves make a bank less vulnerable to runs, but bankers dont liek to hold exvess reserves because
    • A. 

      Holding excess reserves means lower profits for banks

    • B. 

      Holding excess reserves is frowned on by bank examiners

    • C. 

      Holding excess reserves is indefensible to the bank's stockholders if the economy is turning down

    • D. 

      All the above


  • 13. 
    If banks keep only a fraction of deposits on hand, they might be vulnerable to
    • A. 

      A bank run

    • B. 

      A demand for immediate return of deposits

    • C. 

      A 'bank panic'

    • D. 

      Loss of confidence

    • E. 

      All the above


  • 14. 
    Fiscal policy is designed for
    • A. 

      International trade

    • B. 

      Spending and taxes

    • C. 

      Manipulating the money supply

    • D. 

      All the above


  • 15. 
    Disposable income is the income actually available to the customers that determines aggregate demand

  • 16. 
    In contrast to changes in gov. spending, tax changes affect spending
    • A. 

      Directly

    • B. 

      Indirectly

    • C. 

      In the same proportion

    • D. 

      All the above


  • 17. 
    How does an increase in taxes affect the expenditure schedule?
    • A. 

      It causes movement to the left along the schedule

    • B. 

      It causes the schedule to shift upward

    • C. 

      It causes movement to the right along the schedule

    • D. 

      It causes the schedule to shift downward


  • 18. 
    How does an decrease in taxes affect the expenditure schedule?
    • A. 

      It causes movement to the left along the schedule

    • B. 

      It causes the schedule to shift upward

    • C. 

      It causes movement to the right along the schedule

    • D. 

      It causes the schedule to shift downward


  • 19. 
    When we add a personal income tax to the macroeconomic model, the 
    • A. 

      Multiplier becomes larger

    • B. 

      Multiplier becomes smaller

    • C. 

      Expenditures schedule shifts upward

    • D. 

      Expenditures schedule shifts downward


  • 20. 
    When we subtract a personal income tax to the macroeconomic model, the 
    • A. 

      Multiplier becomes larger

    • B. 

      Multiplier becomes smaller

    • C. 

      Expenditures schedule shifts upward

    • D. 

      Expenditures schedule shifts downward


  • 21. 
    The oversimplifies formula for the multilpier yelds a number that is too large doe to the exclusion of
    • A. 

      Imports

    • B. 

      Price-level

    • C. 

      Income taxes

    • D. 

      All the above


  • 22. 
    For any given change in taxes, the multiplier
    • A. 

      Will work indirectly through consumption

    • B. 

      Effect will occur in two steps

    • C. 

      Effect will be smaller than for an equivalent dollar change in government spending

    • D. 

      All the above


  • 23. 
    An automatice stabilizer is a feature of the economy that
    • A. 

      Makes prices "sticky"

    • B. 

      Reduces its sensitivity to shocks

    • C. 

      Maximizes its volatility

    • D. 

      Automatically reduces recessionary trends


  • 24. 
    Congress is debating whether to raise taxes by 100billion or decrease spending by 100 billion in order to eliminate budgit deficit. which action will have the larger efect on equilibrium GDP?
    • A. 

      The increase in taxes

    • B. 

      The decrease in spending

    • C. 

      The effects will be equal

    • D. 

      Not possible to determine without knowing the multiplier


  • 25. 
    In order to maintain a balanced budget, congress has decided to cut taxes and government spending both by 25 billion. what will happen to GDP?
    • A. 

      It will increase

    • B. 

      It will remain the same

    • C. 

      It will decrease

    • D. 

      It's impossible to know without the mulitplier


  • 26. 
    Government transfer payments
    • A. 

      Are subtracted from national income to obtain disposable income

    • B. 

      Can be considered as negative taxes

    • C. 

      Intervene between national product and disposable income in the same way as taxes

    • D. 

      Are counted the same as taxes in computing national income


  • 27. 
    An increase in social security payments to retired persons has what effeect on equilibrium income?
    • A. 

      GDP will fall

    • B. 

      GDP will raise

    • C. 

      GDP will remain the same

    • D. 

      GDP will fall by less than the increase in payments


  • 28. 
    If congress votes to increase governemnt purchases and at the same time decrease personal income taxes, they
    • A. 

      Have decided to balance teh deferal budget

    • B. 

      Have voted for the proper policy to counteract a recessionary gap

    • C. 

      Have voted for the proper policy to counteract an inflationary gap

    • D. 

      Are trying to achieve a federal budget surplus


  • 29. 
    A decrease in social security payments to retired persons has what effeect on equilibrium income?
    • A. 

      GDP will fall

    • B. 

      GDP will raise

    • C. 

      GDP will remain the same

    • D. 

      GDP will fall by less than the increase in payments


  • 30. 
    If congress votes to decrease governemnt purchases and at the same time increase personal income taxes, they
    • A. 

      Have decided to balance teh deferal budget

    • B. 

      Have voted for the proper policy to counteract a recessionary gap

    • C. 

      Have voted for the proper policy to counteract an inflationary gap

    • D. 

      Are trying to achieve a federal budget surplus


  • 31. 
    Expansionary fiscal policy can cause a rise in real GDP in combination with
    • A. 

      An increase in price level

    • B. 

      A decrease in the price level

    • C. 

      No change in the price level

    • D. 

      A decrease in the price level if the aggregate supply curve is upward sloping


  • 32. 
    Which of the following is not a method to reduce the inflationary gap
    • A. 

      Increase government spending

    • B. 

      Reducing transfer payments

    • C. 

      Raising taxes

    • D. 

      Decreasing government expenditure


  • 33. 
    In 2000, many economists believed that the most serious macroeconomic problem confronting the US economy was an inflationary gap. which policies whould be effective in dealing with this problem?
    • A. 

      Increase transfer payments

    • B. 

      Increase government purchases

    • C. 

      Decrease personal income taxes

    • D. 

      Increase personal income taxes


  • 34. 
    To eliminate an inflationary gap, the expenditure schedule should
    • A. 

      Shift upward

    • B. 

      Shift downward

    • C. 

      Become flatter

    • D. 

      Become steeper


  • 35. 
    To eliminate an recessionary gap, the expenditure schedule should
    • A. 

      Shift upward

    • B. 

      Shift downward

    • C. 

      Become flatter

    • D. 

      Become steeper


  • 36. 
    Which of the following will shift the aggregate demand curve outward?
    • A. 

      Tax cuts and government spending cuts

    • B. 

      Tax increases and governement spending increases

    • C. 

      Tax cuts and government spending increases

    • D. 

      Tax increases and government spending increases


  • 37. 
    A "conservative" would most likely argue in favor of 
    • A. 

      Tax increases increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary

    • B. 

      Tax cuts when fiscal restraint is necessary and spending cuts when fiscal stimulus is necessary

    • C. 

      Tax cuts when fiscal stimulus is necessary and spending cuts when fiscal restaint is necessary

    • D. 

      Spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary


  • 38. 
    A "liberal" would most likely argue in favor of 
    • A. 

      Tax increases increases when fiscal stimulus is necessary, and spending cuts when fiscal restraint is necessary

    • B. 

      Tax cuts when fiscal restraint is necessary and spending cuts when fiscal stimulus is necessary

    • C. 

      Tax cuts when fiscal stimulus is necessary and spending cuts when fiscal restaint is necessary

    • D. 

      Spending increases when fiscal expansion is necessary, and tax increases when fiscal stimulus is necessary


  • 39. 
    Which of the following individuals would most likely facor an increase in government spening as opposed to a tax cut, as the basis for expansionary fiscal policy?
    • A. 

      William simon

    • B. 

      Howard harvis

    • C. 

      J.K. Galbraith

    • D. 

      Direction's law


  • 40. 
    Decreasing aggregate demand to eliminate and inflationary gap often creates the problem of
    • A. 

      Unemployment

    • B. 

      Increasing real GDP

    • C. 

      Increasing inflation

    • D. 

      Increasing the labor force


  • 41. 
    Of the objectives of supply-side policies is to
    • A. 

      Focus attention on the trade-off

    • B. 

      Sharpen the trade-off

    • C. 

      Eliminate the trade-off

    • D. 

      Convince the public of the trade-off


  • 42. 
    A reduction in the capital gains tax, often advocated by proponents of supply-side economics, is supposed to stimulate increased
    • A. 

      Consumer spending

    • B. 

      Net exports

    • C. 

      Investment spending

    • D. 

      Government spending


  • 43. 
    Critics of the supply-side economice argue that a major flaw is
    • A. 

      The small magnitude of supply-side effects

    • B. 

      The large size of demand-side effects

    • C. 

      Increased income inequality

    • D. 

      All the above


  • 44. 
    If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)
    • A. 

      Decrease in output and prices

    • B. 

      Decrease in output and an increase in prices

    • C. 

      Increase in output and prices

    • D. 

      Increase in output and a decrease in prices


  • 45. 
    Supply-side tax cuts tend to benegit the rich because tax cuts
    • A. 

      On income tend to benefit high income earners more than low income earners

    • B. 

      On savings benefit high income earners who do most of the personal saving

    • C. 

      For capital formation tend to benefit those with the means to accumilate capital

    • D. 

      On capital gains tend to benefit those with larger financial assets

    • E. 

      All the above


  • 46. 
    In the short run, tax cuts that are intended to increase aggregate supply have
    • A. 

      Almost no effect on aggregate demand, and a small effect on aggregate supply

    • B. 

      About an equal effect on both aggregate demand and aggregate supply

    • C. 

      A much greater effect on aggregate demand than on aggregate supply

    • D. 

      Almost no effect on aggregate supply, and a negative effect on aggregate demand


  • 47. 
    Government regulations to unsure the safety of depositors and to control the nation's money supply include
    • A. 

      Elimination of the required reserves on bank demand deposits

    • B. 

      Limitations on the kinds and quanitites of assets in which banks may invest

    • C. 

      Setting interest ceilings on NOW accounts and savings accounts

    • D. 

      All of the above


  • 48. 
    Ed kane has written critically of government supervision of the S&L indusrty. His term "zombie S&L" refers to the fact that..
    • A. 

      Bank managers were reluctant to take on any risk, and became quite passive in the face of growing losses.

    • B. 

      Many S&L's were ledning to bankrupt firms without realizing it, and were in danger of being dragged down themselves

    • C. 

      Many lenders were technically bankrupt, but were not shut down because of shortages in the deposit insurance funds

    • D. 

      S&L's were being hunted down by out of state firms which sought to expand their branch banking activity


  • 49. 
    One reason why the cost of the S&L clean up was so expensive is that 
    • A. 

      Neither president reagan or congress chose to face up to the problem quickly enough to resolve it when it was still inexpensive to do so

    • B. 

      Congress was unable to force president reagan to propose legislation which would have resolves the problem

    • C. 

      No one realized that there was a problem until 1990, and by then the cost has mushroomed to a large size


  • 50. 
    As a general rule, one would never keep on deposit at an FDIC insured bank an amount greated than..
    • A. 

      1,000,000

    • B. 

      100,000

    • C. 

      20% of bank reserves

    • D. 

      Infinite, there is no reason to limit deposit size


  • 51. 
    The financial costs of the S&L bailout will be borne primarily by the 
    • A. 

      Resolution trust corporation

    • B. 

      US taxpayer

    • C. 

      Depositors in the S&L's

    • D. 

      The Federal Deposit Insurance Corporation


  • 52. 
    The money supply grows when 
    • A. 

      The US treasury issues US notes to Federal Reserve Banks

    • B. 

      Banks cancel the loans in default

    • C. 

      Banks make loans based on a system of fractional reserves

    • D. 

      The Federal Reserve system issues new federal reserve notes to commercial banks.


  • 53. 
    An eccentric millionaire dies and leaves the 1,000,000 cash stuffed in his mattress. if the required reserve ration is 25%, what will happen to the nations's money supply? assume that no banks keep excess reserves and no indiviudals or firms hold cash.
    • A. 

      Money supply will expand 4,000,000

    • B. 

      Money supply will expand 3,000,000

    • C. 

      Money supply will expand 1,000,000

    • D. 

      Money supply will expand 750,000


  • 54. 
    The money creation process generated by an injection of reserves stops when
    • A. 

      The reserve requirements are raised

    • B. 

      Bankers begin to fear runs and stop making loans

    • C. 

      People deposit their loans in other banks

    • D. 

      The increase in required reserves equals the size of the injection


  • 55. 
    The banking system recieves a new cash deposti of 200,000. total deposits raise to 2,000,000. the value of the reserve ration is..
    • A. 

      10

    • B. 

      .10

    • C. 

      5

    • D. 

      .20


  • 56. 
    Assume that the required reserve ration is 10%. a deposit of new money of 200,000 will lead to a total maxium expansion of bank deposits of 
    • A. 

      2 million

    • B. 

      1 million

    • C. 

      800,000

    • D. 

      200,000

    • E. 

      Zero


  • 57. 
    If the public begins to hold less cash in wallets and elsewhere, the money supply will 
    • A. 

      Increase

    • B. 

      Decrease

    • C. 

      Be unchanged


  • 58. 
    During a period of wide and rapid business fluctuation, a profit oriented bank will behave in a way that 
    • A. 

      Dampens the fluctuations

    • B. 

      Is neutral with respect to fluctuations

    • C. 

      Makes the fluctuations more severe

    • D. 

      It will worsen upswings but lessen downswings

    • E. 

      It will worsen downswings but lessen upswings


  • 59. 
    If the public begins to hold more cash in wallets and elsewhere, the money supply will 
    • A. 

      Increase

    • B. 

      Decrease

    • C. 

      Be unchanged


  • 60. 
    One problem for economic stability is that in an economic upswing
    • A. 

      Banks will be tempted to decrease lending in order to increase interest rates and profits

    • B. 

      Deposits tend to decrease rapidly as persons spend more, therefore decreasing the money supply

    • C. 

      Profit-orientated banks will tend to hold excess reserves and decrease the money supply

    • D. 

      Profit-orientated banks will tend to lend more and expand the money supply

    • E. 

      Demand for loans drops rapidly, leading to less lending and redepositing


  • 61. 
    The willingness of profit-orientated banks to make loans
    • A. 

      Tends to reduce inflation and minimize recessions

    • B. 

      Has no effect on inflations or recesssion

    • C. 

      Moves in a fashion that amplifies either an inflation or recession

    • D. 

      Will reduce recessions and exacerbate inflations


  • 62. 
    Members on the board of Governers of the Fed are
    • A. 

      Elected to four-year terms by the electorial college when it votes for president

    • B. 

      Appointed by the president with the advice and consent of the senate for 4yr terms which do not coincide with the presidents term

    • C. 

      Appointed by the president with the advice and consent of the senate for 4 yr terms which coincide with the presidents term

    • D. 

      Appointed by the president with the advice and consent of the senate for 14 yr terms


  • 63. 
    The federal reserve banks are corporations, the stockholders of which are
    • A. 

      The state governments of the 12 federal districts

    • B. 

      The US treasury

    • C. 

      The member banks

    • D. 

      The US public which buys shares on the stock exchange

    • E. 

      All the above


  • 64. 
    When the federal reserve system was first establised, its founders intended it to 
    • A. 

      Pursue an active monetary policy to stabilize the economy

    • B. 

      Enable the federal government to increase it expenditures without raising taxes

    • C. 

      Assist the treasury in collecting taxes

    • D. 

      Provide insurance against financial panics by acting as a lender of last resort


  • 65. 
    Some opponents of the federal reserve system believe that
    • A. 

      Monetary policy should be formulated by elected representatives of the people

    • B. 

      The system is highly political

    • C. 

      The system works at odds with the fiscal system

    • D. 

      All the above


  • 66. 
    In practice, short-term interest rates and the money supply are determined by 
    • A. 

      The federal open market committee

    • B. 

      The board of governors

    • C. 

      The federal presidents commission

    • D. 

      The committee on monetary enactment and trade

    • E. 

      The treasury reserve and monetary system


  • 67. 
    If the Fed buys a bond from a commercial bank, how will it pay for the bond?
    • A. 

      It will write a check against an existing account

    • B. 

      It will take reserves from another bank

    • C. 

      It will reduce a government checking account for the amount

    • D. 

      It will borrow from the public to pay for it

    • E. 

      It will give the bank new reserves


  • 68. 
    The money supply contracts when the fed
    • A. 

      Gathers up worn and ripped Federal Reserve Notes

    • B. 

      Sells government securities

    • C. 

      Borrows from the US treasury

    • D. 

      Purchases equities in major US corporations


  • 69. 
    Which of the following is correct?
    • A. 

      The Fed has very good control over bank reserves and the money supply

    • B. 

      The Fed has very good control over bank reserves but not the money supply

    • C. 

      The Fed has poor control of bank reserves, but good control of the money supply

    • D. 

      The Fed has no control over either reserves or the money supply


  • 70. 
    Assume the required reserve ratio is 25% and the POMC orders an open market purchase of 200 million. if the banks do not want to hold excess reserves and the public does not want to hold additional cash, then the money supply will
    • A. 

      Contract 200 million

    • B. 

      Expand 200 million

    • C. 

      Contract 800 million

    • D. 

      Expand 800 million


  • 71. 
    Banks will hole substantial excess reserves when
    • A. 

      Loans to customers look safe and when interest rates are high

    • B. 

      The economy is booming and there is a great demand for business loans

    • C. 

      Loans to customers look unususally risky or if interest rates are very low

    • D. 

      The anticipate a bank audit


  • 72. 
    If the federal oppen market committee orders a puchase of governmetn securities from banks, where does the federal reserve get the money to pay for the securities?
    • A. 

      It auctions off part of the millions of dollars worth of US securities it has in reserve

    • B. 

      It borrows the necessary fund from the US treasury

    • C. 

      It creates the money to pay for the securities by adding the purchase amount to the reserve accounts of banks

    • D. 

      It pays for the securities with newly printed Federal Reserve notes


  • 73. 
    The Fed cannot predict the consequence of its actions with perfect accuracy because of 
    • A. 

      Fluctuations in people's desires to hold cash

    • B. 

      Bank's desires to hold excess reserves

    • C. 

      Foreign desire to hole American dollars

    • D. 

      All of the above


  • 74. 
    If you knew in advance that the Fed was going to pursue an open market operation to create excess reserves, you would
    • A. 

      Sell bonds

    • B. 

      Buy bonds

    • C. 

      Put more money into your savings account

    • D. 

      Reduce the size of your checking account

    • E. 

      All the above


  • 75. 
    Consequent to a secret open market operation, bon prices fell. we can deduce that the Fed probably
    • A. 

      Sold bonds

    • B. 

      Wanted to lower interest rates

    • C. 

      Wanted to stimulate the economy

    • D. 

      Wanted to raise excess reserves

    • E. 

      All the above


  • 76. 
    You purchased a bond in 1985 for 1,000 that pays 60 per year interest. if you sell the bond for 500, the purchaser will earn an effective interest rate of 
    • A. 

      3%

    • B. 

      6%

    • C. 

      10%

    • D. 

      12%

    • E. 

      15%


  • 77. 
    If the Fed decieds to sell bonds, it decreased demand for bonds. how will that affect the price of bonds and the interest rate?
    • A. 

      Bond prices increase, interest rate decreases

    • B. 

      Bond prices increase, interest rate increases

    • C. 

      Bond prices decrease, interest rate decreases

    • D. 

      Bond prices decrease, interest rate increases


  • 78. 
    If the Fed wants to give banks more reserves, it can
    • A. 

      Sell securities in the open market

    • B. 

      Raise the required reserve ratio

    • C. 

      Lower the discount rate

    • D. 

      Raise the federal funds rate

    • E. 

      All the above


  • 79. 
    If the Fed increases the discount rate, what happens to reserces and the money supply?
    • A. 

      Both increase

    • B. 

      Reserves increase, money supply decreases

    • C. 

      Reserves decrease, money supply increases

    • D. 

      Both decrease


  • 80. 
    Assume that the banking system has 400 billion in reserces. there are no excess reserces in the system. if the reserve requirement is dropped from 10% to 9.5% what will happen to the lecel of excess reserves in the system?
    • A. 

      There will be 2 billion in excess reserves

    • B. 

      There will be 1 billion in excess reserves

    • C. 

      There will be no change in exvess reserves

    • D. 

      There will be a 1 billion deficiency in reserves

    • E. 

      There will be a 2 billion deficiency in reserves


  • 81. 
    When the fed wishes to contract the money supply it can
    • A. 

      Increase the reserve requirement

    • B. 

      Decrease the reserve requirement

    • C. 

      Ask people to save more

    • D. 

      Turn additional sums of money over to the treasury


  • 82. 
    The supply-of-money curve has a positive slope because
    • A. 

      As interest rates rise, people will want to be supplies with more loans

    • B. 

      The fed makes more oney available as interest rates raise

    • C. 

      As interest rates rise, banks will find more loans profitable

    • D. 

      The fed lowers the discount rate as interest rates rise

    • E. 

      All the above


  • 83. 
    When interest rates increase, banks would normally want to  
    • A. 

      Increase lending, deposits and the money supply

    • B. 

      Increase lending, but decrease deposits and the money supply

    • C. 

      Decrease lending and deposits, but increase the money supply

    • D. 

      Decrease lending, but increase deposits and the money supply

    • E. 

      Decrease lending, deposits, and the money supply


  • 84. 
    The quantity of money demanded varies
    • A. 

      Directly with prices and inversely with output

    • B. 

      Directly with both prices and output

    • C. 

      Inversely with both prices and output

    • D. 

      Inversely with prices and directly with output


  • 85. 
    The quantity of money demanded falls as interset rates raise because
    • A. 

      People want to hold more liquid assets as the interest rates rise

    • B. 

      The opportunity cost of holding money rises as interest rates rise

    • C. 

      The price of bonds rises as interest rates rise

    • D. 

      People want more money to invest at the higher interest rates


  • 86. 
    Everything else equal, which of the following will raise interest rates?
    • A. 

      Open market sales of government securities by the Fed.

    • B. 

      A decline in the price level

    • C. 

      Lower reserve requirements

    • D. 

      A decrease in real GDP

    • E. 

      All the above


  • 87. 
    In a 45 degree line diagram, the sensitivity of incestment spending to the interest rate is reflected in
    • A. 

      The slope of the C+I+G+(X-IM) line

    • B. 

      The intercept of the C+I+G+(X-IM) line

    • C. 

      The vertical movement of the C+I+G+(X-IM) line in response to a change in the interest rate

    • D. 

      It cannot be reflected in this diagram since the two variables measures are real spending [C+I+G+(X-IM)] and real output (GDP)


  • 88. 
    The near-term effect of an unexpected sale of bonds by the Fed is
    • A. 

      An increase in interest rates, a rise in investment, and a rise in equilibrium GDP

    • B. 

      An increse in interest rates, a drop in investment, and a drop in equilibrium GDP

    • C. 

      A decrease in interest rates, a rise in investment, and a rise in equilibrium GDP

    • D. 

      A decrease in interest rates, a drop in investment, and a drop in equilibrium GDP


  • 89. 
    The effect of monetary policy on aggregate deman depends upon
    • A. 

      The sensitivity of investment to interest rates

    • B. 

      The sensitivity of bond prices to interest rates

    • C. 

      The sensitivity of bond prices to the level of investment

    • D. 

      The sensitivity of government spending to the level of interest

    • E. 

      All the above


  • 90. 
    In which case is monetary policy most potent in terms of impact on aggregate demand
    • A. 

      Interest rates are very sensitive to the money supply, and investment is insensitive to interest rates

    • B. 

      Interest rates are insensitive to the money supply, and investment is very sensitive to interest rates

    • C. 

      Interest rates are insensitive to the money supply, and investment is insensitive to interest rates

    • D. 

      Interest rates are very sensitive to the money supply and investment is very sensitive to interest rates


  • 91. 
    If the Fed were to cut the money supply at the same time the federal government was cutting taxes then we could expect
    • A. 

      An increase in interest rates and the level of income

    • B. 

      A decrease in interest rates and the level of income

    • C. 

      Interest rates to rise but we cannot anticipate the resulting change in income

    • D. 

      Income to fall but we cannot anticipate the resulting change in interest rates


  • 92. 
    Contractionary monetary policy will tend to have what effects
    • A. 

      Increase the money supply, lower interest rates and increase aggregate demand

    • B. 

      Increase the money supply, increase interest rates and decrease aggregate demand

    • C. 

      Decrease the money supply, lower interest rates, and decrease aggregate demand

    • D. 

      Decrease the money supply, increase interest rates and decrease aggregate demand


  • 93. 
    Under what conditions will the inflationary impact of expansionary monetary policy be the smallest
    • A. 

      When the economy is one the production possibilities curve

    • B. 

      When the economy has little unemployment and little excess capacity

    • C. 

      When there is substantial unemployment and unused indestrial capacity

    • D. 

      When the economy is on the vertical portion of the aggregate supply curve

    • E. 

      When the economy is on the sloped portion of the aggregate supply curve


  • 94. 
    An increase in the price level will cause autonomous investment to call fecause a higher price level
    • A. 

      Reduces consumption

    • B. 

      Raises interest rates

    • C. 

      Raises bond prices

    • D. 

      Lowers real GDP


  • 95. 
    What is the shape of the aggregate supply curve that is most likely to result in inflation from expansionary monetary policy
    • A. 

      Horizontal line

    • B. 

      Upward slope

    • C. 

      Downward slope

    • D. 

      Vertical line


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