ECON Final Exam
FinanceAceECON Final Exam
Question 1
1.
Historical evidence for the U.S. economy indicates that
Answer
recessions have occurred roughly once every six years since the 1960s. | ||
the unemployment rate usually decreases during a recession and increases shortly after the recession ends. | ||
real GDP usually remains roughly constant during a recession and decreases shortly after the recession ends. | ||
changes in real GDP over the business cycle are largely attributable to changes in investment over the business cycle. |
2 points
Question 2
1.
Which of the following is most commonly used to monitor short-run changes in economic activity?
Answer
[removed] | the inflation rate | |
[removed] | real GDP | |
[removed] | aggregate demand | |
[removed] | aggregate supply |
2 points
Question 3
1.
During recessions investment
Answer
[removed] | falls by a larger percentage than GDP. | |
[removed] | falls by about the same percentage as GDP. | |
[removed] | falls by a smaller percentage than GDP. | |
[removed] | falls but the percentage change is sometimes much larger and sometimes much smaller. |
2 points
Question 4
1.
The classical model is appropriate for analysis of the economy in the
Answer
[removed] | long run, since evidence indicates that money is not neutral in the long run. | |
[removed] | long run, since real and nominal variables are essentially determined separately in the long run. | |
[removed] | short run, provided money is not neutral. | |
[removed] | short run, provided real and nominal variables are highly intertwined. |
2 points
Question 5
1.
Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes
Answer
[removed] | both the short run and the long run. | |
[removed] | the short run, but not the long run. | |
[removed] | the long run, but not the short run. | |
[removed] | neither the long run nor the short run. |
2 points
Question 6
1.
Aggregate demand includes
Answer
[removed] | the quantity of goods and services both the government and customers abroad want to buy. | |
[removed] | the quantity of goods and services neither the government nor customers abroad want to buy. | |
[removed] | the quantity of goods and service the government wants to buy, but not the quantity of goods and services customers abroad want to buy. | |
[removed] | the quantity of goods and services customers abroad want to buy, but not the quantity of goods and services the government wants to buy. |
2 points
Question 7
1.
The model of aggregate demand and aggregate supply
Answer
[removed] | is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships. | |
[removed] | is different from the model of supply and demand for a particular market, in that we have to separate real and nominal variables in the aggregate model. | |
[removed] | is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted. | |
[removed] | is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted. |
2 points
Question 8
1.
When the price level falls the quantity of
Answer
[removed] | consumption goods demanded rises, while the quantity of net exports demanded falls. | |
[removed] | consumption goods demanded and the quantity of net exports demanded both rise. | |
[removed] | consumption goods demanded and the quantity of net exports demanded both fall. | |
[removed] | consumption goods demanded falls, while the quantity of net exports demand rises. |
2 points
Question 9
1.
When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded?
Answer
[removed] | the real value of wealth | |
[removed] | the interest rate | |
[removed] | the value of currency in the market for foreign exchange | |
[removed] | All of the above are correct. |
2 points
Question 10
1.
Other things the same, a decrease in the price level makes the dollars people hold worth
Answer
[removed] | more, so they can buy more. | |
[removed] | more, so they can buy less. | |
[removed] | less, so they can buy more. | |
[removed] | less, so they can buy less. |
2 points
Question 11
1.
When the price level falls
Answer
[removed] | households want to lend more, so the interest rate rises making the quantity of goods and services demanded rise. | |
[removed] | households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise. | |
[removed] | households want to lend more, so the interest rate rises, making the quantity of goods and services demanded fall. | |
[removed] | None of the above are correct. |
2 points
Question 12
1.
Other things the same, if the U.S. price level falls, then
Answer
[removed] | the supply of dollars in the market for foreign-currency exchange increases, so the exchange rate rises. | |
[removed] | the supply of dollars in the market for foreign-currency exchange increases, so the exchange rate falls. | |
[removed] | the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate rises. | |
[removed] | the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate falls. |
2 points
Question 13
1.
As the price level rises,
Answer
[removed] | the exchange rate falls, so net exports fall. | |
[removed] | the exchange rate falls, so net exports rise. | |
[removed] | the exchange rate rises, so net exports fall. | |
[removed] | the exchange rate rises, so net exports rise. |
2 points
Question 14
1.
Other things the same, as the price level rises, the real value of a dollar
Answer
[removed] | rises, and interest rates rise. | |
[removed] | rises, and interest rates fall. | |
[removed] | falls, and interest rates rise. | |
[removed] | falls, and interest rates fall. |
2 points
Question 15
1.
Other things the same, as the price level falls, a country's exchange rate
Answer
[removed] | and interest rates rise. | |
[removed] | and interest rates fall. | |
[removed] | falls and interest rates rise. | |
[removed] | rises and interest rates fall. |
2 points
Question 16
1.
Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to desire
Answer
[removed] | decreased consumption, shown as a movement to the left along a given aggregate-demand curve. | |
[removed] | increase consumption, shown as a movement to the right along a given aggregate-demand curve. | |
[removed] | decreased consumption, shifting the aggregate-demand curve to the left. | |
[removed] | increased consumption, shifting the aggregate-demand curve to the right. |
2 points
Question 17
1.
Which of the following both shift aggregate demand left?
Answer
[removed] | a decrease in taxes and at a given price level consumers feel more wealthy | |
[removed] | a decrease in taxes and at a given price level consumers feel less wealthy | |
[removed] | an increase in taxes and at a given price level consumers feel more wealthy | |
[removed] | an increase in taxes and at a given price level consumers feel less wealthy |
2 points
Question 18
1.
If speculators bid up the value of the U.S. dollar in the market for foreign exchange, then
Answer
[removed] | U.S. goods become more expensive relative to foreign goods so aggregate demand shifts right. | |
[removed] | U.S. goods become less expensive relative to foreign goods so aggregate demand shifts right. | |
[removed] | U.S. goods become more expensive relative to foreign goods so aggregate demand shifts left. | |
[removed] | U.S. goods become less expensive relative to foreign goods so aggregate demand shifts left. |
2 points
Question 19
1.
The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change
Answer
[removed] | in the price level and output. | |
[removed] | in the price level, but not output. | |
[removed] | in output, but not the price level. | |
[removed] | in neither the price level nor output. |
2 points
Question 20
1.
The long-run aggregate supply curve shifts right if
Answer
[removed] | immigration from abroad increases. | |
[removed] | the capital stock increases. | |
[removed] | technology advances. | |
[removed] | All of the above are correct. |
2 points
Question 21
1.
According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to
Answer
[removed] | increases in both the price level and real GDP. | |
[removed] | an increase in real GDP but does not change the price level. | |
[removed] | an increase in the price level but does not change real GDP. | |
[removed] | no change in either the price level or real GDP. |
2 points
Question 22
1.
In the long run, technological progress
Answer
[removed] | and increases in the money supply both make the price level rise. | |
[removed] | and increases in the money supply both make the price level fall. | |
[removed] | makes the price level rise, while increases in the money supply make prices fall. | |
[removed] | makes the price level fall, while increases in the money supply make prices rise. |
2 points
Question 23
1.
If the price level rises above what was expected and nominal wages are fixed, then
Answer
[removed] | production becomes less profitable so firms will hire fewer workers. | |
[removed] | production becomes less profitable so firms will hire more workers. | |
[removed] | production becomes more profitable so firms will hire fewer workers. | |
[removed] | production become more profitable so firms will hire more workers. |
2 points
Question 24
1.
Other things the same, when the price level rises more than expected, some firms will have
Answer
[removed] | higher than desired prices which increases their sales. | |
[removed] | higher than desired prices which depresses their sales. | |
[removed] | lower than desired prices which increases their sales. | |
[removed] | lower than desired prices which depresses their sales. |
2 points
Question 25
1.
According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what they produce had
Answer
[removed] | increased, so they would increase production. | |
[removed] | increased, so they would decrease production. | |
[removed] | decreased, so they would increase production. | |
[removed] | decreased, so they would decrease production. |
2 points
Question 26
1.
The effects of a higher than expected price level are shown by
Answer
[removed] | shifting the short-run aggregate supply curve right. | |
[removed] | shifting the short-run aggregate supply curve left. | |
[removed] | moving to the right along a given aggregate supply curve. | |
[removed] | moving to the left along a given aggregate supply curve. |
2 points
Question 27
1.
A decrease in the expected price level shifts
Answer
[removed] | only the long-run aggregate supply curve right. | |
[removed] | only the short-run aggregate supply curve right. | |
[removed] | both the short-run and the long-run aggregate supply curve right. | |
[removed] | Neither the short-run nor the long-run aggregate supply curve right. |
2 points
Question 28
1.
Which of the following shifts short-run, but not long-run aggregate supply right?
Answer
[removed] | a decrease in the actual price level | |
[removed] | a decrease in the expected price level | |
[removed] | a decrease in the capital stock | |
[removed] | an increase in the money supply |
2 points
Question 29
1.
In 1986, OPEC countries increased their production of oil. This caused
Answer
[removed] | the price level to rise. | |
[removed] | aggregate supply to shift right. | |
[removed] | unemployment to rise. | |
[removed] | None of the above is correct. |
2 points
Question 30
1.
Keynes believed that economies experiencing high unemployment should adopt policies to
points
Question 31
1.
The interest-rate effect
Answer
[removed] | depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. | |
[removed] | depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. | |
[removed] | is responsible for the downward slope of the money-demand curve. | |
[removed] | is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. |
2 points
Question 32
1.
The wealth effect stems from the idea that a higher price level
Answer
[removed] | increases the real value of households’ money holdings. | |
[removed] | decreases the real value of households’ money holdings. | |
[removed] | increases the real value of the domestic currency in foreign-exchange markets. | |
[removed] | decreases the real value of the domestic currency in foreign-exchange markets. |
2 points
Question 33
1.
According to John Maynard Keynes,
Answer
[removed] | the demand for money in a country is determined entirely by that nation’s central bank. | |
[removed] | the supply of money in a country is determined by the overall wealth of the citizens of that country. | |
[removed] | the interest rate adjusts to balance the supply of, and demand for, money. | |
[removed] | the interest rate adjusts to balance the supply of, and demand for, goods and services. |
2 points
Question 34
1.
While a television news reporter might state that “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent,” a more precise account of the Fed’s action would be as follows:
Answer
[removed] | “Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent.” | |
[removed] | “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” | |
[removed] | “Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.” | |
[removed] | “Today the Fed took a step toward contracting aggregate demand, and this was done by lowering the federal funds rate to 5.25 percent.” |
2 points
Question 35
1.
People choose to hold a smaller quantity of money if
Answer
[removed] | the interest rate rises, which causes the opportunity cost of holding money to rise. | |
[removed] | the interest rate falls, which causes the opportunity cost of holding money to rise. | |
[removed] | the interest rate rises, which causes the opportunity cost of holding money to fall. | |
[removed] | the interest rate falls, which causes the opportunity cost of holding money to fall. |
2 points
Question 36
1.
If expected inflation is constant, then when the nominal interest rate increases, the real interest rate
Answer
[removed] | increases by more than the change in the nominal interest rate. | |
[removed] | increases by the change in the nominal interest rate. | |
[removed] | decreases by the change in the nominal interest rate. | |
[removed] | decreases by more than the change in the nominal interest rate. |
2 points
Question 37
1.
When the Fed sells government bonds, the reserves of the banking system
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2 points
Question 38
1.
The opportunity cost of holding money
Answer
[removed] | decreases when the interest rate increases, so people desire to hold more of it. | |
[removed] | decreases when the interest rate increases, so people desire to hold less of it. | |
[removed] | increases when the interest rate increases, so people desire to hold more of it. | |
[removed] | increases when the interest rate increases, so people desire to hold less of it. |
2 points
Question 39
1.
If there is excess money supply, people will
Answer
[removed] | deposit more into interest-bearing accounts, and the interest rate will fall. | |
[removed] | deposit more into interest-bearing accounts, and the interest rate will rise. | |
[removed] | withdraw money from interest-bearing accounts, and the interest rate will fall. | |
[removed] | withdraw money from interest-bearing accounts, and the interest rate will rise. |
2 points
Question 40
1.
According to liquidity preference theory, if the price level increases, then the equilibrium interest rate
Answer
[removed] | rises and the aggregate quantity of goods demanded rises. | |
[removed] | rises and the aggregate quantity of goods demanded falls. | |
[removed] | falls and the aggregate quantity of goods demanded rises. | |
[removed] | falls and the aggregate quantity of goods demanded falls. |
2 points
Question 41
1.
If the MPC = 3/5, then the government purchases multiplier is
2 points
Question 42
1.
If the multiplier is 5, then the MPC is
Answer
[removed] | 0.05. | |
[removed] | 0.5. | |
[removed] | 0.6. | |
[removed] | 0.8. |
2 points
Question 43
1.
In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is
Answer
[removed] | $151.25. | |
[removed] | $166.75. | |
[removed] | $170.20. | |
[removed] | $175.00. |
2 points
Question 44
1.
If the MPC is 0.80 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by
Answer
[removed] | $80 billion. | |
[removed] | $125 billion. | |
[removed] | $500 billion. | |
[removed] | $800 billion. |
2 points
Question 45
1.
Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand
Answer
[removed] | shifts rightward by $62.5 billion. | |
[removed] | shifts rightward by $50.0 billion. | |
[removed] | shifts rightward by $32.5 billion. | |
[removed] | None of the above is correct. |
2 points
Question 46
1.
The economist A.W. Phillips published a famous article in 1958 in which he showed a
2 points
Question 47
1.
In the short run, policy that changes aggregate demand changes
Answer
2 points
Question 48
1.
If policymakers decrease aggregate demand, then in the short run the price level
Answer
[removed] | falls and unemployment rises. | |
[removed] | and unemployment fall. | |
[removed] | and unemployment rise. | |
[removed] | rises and unemployment falls. |
2 points
Question 49
1.
If the central bank increases the money supply, then in the short run prices
Answer
[removed] | rise and unemployment falls. | |
[removed] | fall and unemployment rises. | |
[removed] | and unemployment rise. | |
[removed] | and unemployment fall. |
2 points
Question 50
1.
According to the short-run Phillips curve, if the central bank increases the money supply, then
Answer
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