Macroeconomics Quiz

1. Suppose there is a policy mix of expansionary monetary policy and expansionary fiscal policy. This combination of policies must cause:

2. Suppose the consumption equation is represented by the following: C = 100 + .75(Y-T). The multiplier in this economy is ________.

3. Suppose the public only hold currency (i.e. there are no banks). The demand for money is given by

Money demand = $Y(0.4 - i)

The nominal income is $100 and interest rate is held fixed by the central bank at 10% (or 0.1). Starting from the initial equilibrium suppose nominal income increases to $125. The increase in income will require the central bank to increase the supply of money from ________ to ________ .

4. Use the following information to answer the question below.

C = 1000 + .8(Y-T)

I = 800

G = 1800

T = 1000

The equilibrium level of GDP for the above economy equals:

5. Suppose a bond offers to pay $1000 in one year and currently sells for $900. Given this information, we know that the interest rate on the bond is:

6. Suppose the economy is currently operating on both the LM curve and the IS curve. Given this information, we know that:

7. The four components of national income are

8. When the central bank controls the interest rate, the aggregate demand (AD) curve is downward sloping because:

a. a reduction in the money supply (M) will cause an increase in the interest rate, a reduction in investment, and a reduction in output.

b. a reduction in the aggregate price level (P) will cause the central bank to reduce the interest rate and thus increase output.

c. a reduction in P will cause an increase in the real wage, a reduction in employment, and a reduction in output.

d. as P increases, goods and services become relatively more expensive and individuals respond by reducing the quantity demanded of goods and services.

9. Suppose there is a reduction in the price of oil. This change in the price of oil will cause which of the following in the short run?

10. A reduction in the minimum wage will tend to cause which of the following?