Download Econ 100Practice Exam 2

Econ 100
Practice Exam 2
The exam will cover the following:
 Keynesian model including multiplier
 Aggregate Supply and Demand
 Fiscal Policy
 Money and the Federal Reserve
 Monetary Policy
 The Phillips Curve

The exam will be multiple choice—bring a scantron.
It will not cover material after the Phillips curve, which will be on the final exam.
Questions:
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10.
If MPC=.75 and the government increases spending by $100, what happens to GDP?
The slope of the consumption function is the ____________.
If the Fed buys bonds from a commercial bank, what happens to the money supply?
What are open market operations?
The short run Phillips curve slopes _____________.
If aggregate supply shifts left, what happens to GDP and the price level?
What are the advantages and disadvantages of monetary and fiscal policy?
What are automatic stabilizers—give an example.
What is the multiplier in the Keynesian model?
In addition to increasing output what else can happen with an expansionary monetary
policy?
11. The money multiplier is ____________.
Answers:
1. It increases by $400 [multiply $100 times the multiplier, which is 4].
2. Marginal propensity to consume [MPC].
3. It increases.
4. When the Fed buys and sells bonds to private bank to increase or decrease the money
supply.
5. downward
6. both increase
7. Monetary policy is controlled by the Fed and is less subject to political pressure than
fiscal policy, but monetary policy.
8. Automatic stabilizers smooth out the business cycle by increasing or decreasing
government spending as appropriate. For example the Federal Income tax increases
significantly when the economy is strong, dampening the economic expansion.
Unemployment insurance stimulates the economy during a recession.
9. 1/(1-MPC)
10. inflation
11. 1/the reserve ratio