Please return your answers to my office by 11:00 AM on Monday, May 6. On Your Scantron sheet please identify your name, the test as CH quiz.

Transcription

1 Chapter take-home quiz: Please return your answers to my office by 11:00 AM on Monday, May 6. On Your Scantron sheet please identify your name, the test as CH quiz. 1. For how long is the chairman of the board of governors of the Fed appointed and by whom? A) Appointed for two years by all the other governors B) Appointed for two years by the governor of the New York district branch C) Appointed for two years by the president of the United States D) Appointed for four years by all the other governors E) Appointed for four years by the president of the United States 2. Under normal conditions, which of the following economic variables is not affected by changes in the amount of money circulating in an economy? A) Potential real GDP B) The nominal interest rate C) The inflation rate D) The aggregate price level E) None of these; that is, all are affected. 3. When the Federal Open Market Committee buys government securities, A) the reserve requirement of banks decreases. B) the reserve deposits of banks decrease. C) the reserves in the banks increase. D) the federal funds rate increases. E) the legal reserves of banks decrease. 4. To increase the money supply, the Fed could A) increase the reserve requirement and the discount rate, and sell bonds. B) increase the reserve requirement and the discount rate, and buy bonds. C) decrease the reserve requirement and the discount rate, and sell bonds. D) decrease the reserve requirement and the discount rate, and buy bonds. E) increase the reserve requirement, decrease the discount rate, and buy bonds. Page 1

2 Interest Rate (percent) Use the following to answer question 5: MS C D A B Md 2 Md 1 Quantity of Money (dollars) 5. In the figure above, which of the following is most likely to cause a shift in the money demand curve from Md 2 to Md 1? A) A decrease in the money supply B) A decrease in the interest rate on non-monetary assets C) An increase in inflation D) A decrease in national income E) An increase in the interest rate on non-monetary assets Page 2

3 Interest Rate (percent) Price Level Use the following to answer question 6: AS i 2 i 1 0 AD 1 I AD 2 0 I 2 I 1 Y 2 Y 1 Planned Investment (dollars) Planned Investment (dollars) 6. In the figure above, the increase in the interest rate from i 1 to i 2 could have been caused by A) a decrease in money demand. B) an increase in money supply. C) a decrease in money supply. D) an increase in bond prices. E) an excess supply of money. 7. The term fiscal policy refers to A) the use of fines to penalize unfair business practices. B) the purchase and sale of U.S. government securities to regulate the money supply. C) the adjustment of the GDP for inflation. D) a policy action by Congress to overrule unpopular budget cuts by the president. E) the use of government spending and taxation to influence the level of economic growth and inflation. 8. Fiscal policy in the United States is created by A) a decree by the president. B) an act of Congress. C) a joint budget resolution by federal agencies. D) a yearly budget process involving both the president and Congress. E) a five-year budget plan overseen by the Office of Management and Budget. 9. Economists define two components of fiscal policy. These are A) obligatory fiscal policy and automatic fiscal actions. B) discretionary fiscal policy and reflexive fiscal policy. C) discretionary fiscal policy and automatic stabilizers. D) automatic stabilizers and reflexive fiscal policy. E) obligatory and reflexive fiscal policies. Page 3

4 10. All of the following are potential costs of the U.S. national debt except A) lower inflation in the future. B) higher interest rates that discourage private investment. C) a higher international trade deficit. D) foreign-held debt that must be repaid. E) reduced domestic wealth in the future. 11. A progressive tax is A) a tax used by progressive governments around the world. B) a tax that is a flat dollar amount regardless of income. C) a tax whose rate falls as income rises. D) a tax that a business pays. E) an automatic stabilizer. 12. Under a progressive tax system, A) the average tax rate increases with increases in real GDP. B) the average tax rate remains constant with changes in real GDP. C) the average tax rate falls with increases in real GDP. D) government tax receipts increase when the economy is in a recession. E) government tax receipts decrease when the economy is expanding. 13. If the government wants to close a recessionary GDP gap, which of the following identifies an appropriate policy response and its effect on aggregate economic performance? A) raise government spending, thereby shifting the aggregate demand curve to the left. B) lower taxes, thereby shifting the aggregate demand curve to the right. C) lower government spending, thereby shifting the aggregate supply curve to the left. D) raise taxes, thereby shifting the aggregate supply curve to the right. E) raise both government spending and taxes by the same amount, thereby shifting the aggregate demand curve to the left. 14. An automatic stabilizer is A) a change in government spending aimed at achieving a policy goal. B) an element of fiscal policy that automatically changes in value as real GDP changes. C) an element of monetary policy that automatically changes in value as real GDP changes. D) a deliberate change in taxation aimed at increasing real GDP. E) a decrease in tax rates as the economy moves into a recession. Page 4

5 Price Level (dollars) 15. The aggregate demand curve A) shows the various levels of expenditures that the economy will engage in at alternative price levels. B) implies a positive relationship between inflation and unemployment. C) has a positive slope that gets steeper as it reaches higher income levels.. D) has the same slope as the aggregate supply curve. E) relates relative prices to the quantity demanded of a particular good. Use the following to answer questions 16-17: AS 1 P 2 B A C AD 2 AD Real GDP (billions of dollars) 16. Consider the economy described by the figure above. The shift in aggregate demand from AD 1 to AD 2 could have been initiated by A) a decrease in the price level. B) an increase in saving. C) government budget cuts. D) an increase in autonomous net exports. E) lower resource prices. 17. Consider the economy described by the figure above and assume that equilibrium is at point A. Given AD 1, a rightward shift of the AS curve would cause A) unemployment to rise. B) the price level to rise. C) the equilibrium real GDP level to fall. D) business production to fall. E) real GDP to rise. Page 5

6 Price Level (dollars) AS LRAS 1 AS 2 P 4 P 2 P 3 AD 2 AD Real GDP (billions of dollars) 18. Refer to the figure above. If initially AD 1 and AS 1 are the relevant curves, equilibrium real GDP equals A) $500 billion. B) $300 billion. C) $400 billion. D). E) P Refer to the figure above. The shift in aggregate demand from AD 1 to AD 2 could have been initiated by A) an increase in domestic exports. B) lower foreign income. C) an increase in government spending. D) an increase in the price level. E) business expectations of strong economic growth. 20. Refer to the figure above. After an initial shift from AD1 to AD2, over time, short-run aggregate supply shifts from AS 1 to AS 2 because A) production costs fall in response to lower resource prices. B) the government increases spending. C) consumers increase spending. D) income tax rates decrease. E) exports increase. 21. Refer to the figure above. In the long run, following the shifts to AD 2 and AS 2, the equilibrium price level and real GDP are, respectively, A) P 2 and $300 billion. B) and $400 billion. C) P 2 and $400 billion. D) P 3 and $300 billion. E) P 3 and $400 billion. Page 6