Download ECN202 Practice Questions: 1930s

ECN202
Practice Questions: 1930s
1. The period between the US Civil War and WWI was a time of remarkable change in the US. Which of the following
was not a feature of this transformation?
a. Technological advances in communication and transportation led to the creation of national market
b. Technological innovations in business equipment contributed to the rising size of the nation's corporations
c. The rise of the railroad led to the rise of Chicago and the relative decline of New Orleans and St. Louis, two
important ports on the inland waterways
d. Immigration increased throughout the period, although the country of origins changed with increasing numbers of
immigrants arriving from southern and eastern Europe
e. The rapid pace of technological change led to decreasing inequity on the distribution of income and wealth
Capital Market in Classical Market
2. How would you show a reduction in the budget deficit in the graph of the capital market that appears above?
a. shift the I curve out
b. shift the I curve in
c. shift the S curve in
d. shift the S curve out
3. In the late 1970s there was a rebirth of interest in the quantity theory of money that was a central piece of the
Classical macro model. If you believed in the quantity theory of money and you expected velocity to increase at a rate
of one percent, and you wanted real output to grow at three percent, what should be your target growth rate for the
supply if you want only zero percent inflation?
a.
0 percent
b. 1 percent
c. 2 percent
d. 3 percent
e. 6 percent
4. Which scatter diagram best represents the relationship between the gold supply (x) and the money supply (y) if the
economy was on the gold standard?
5. Ron Paul, a libertarian and likely Republican candidate for president in 2016, would like to see the US return to the
gold standard. As someone who believed in gold standard and the Quantity Theory of money, Paul would point to what
statistics as an indicator of upcoming inflation?
a. unemployment rates
b. interest rates
c. money supply figures
d. international trade deficit figures
6. David Ricardo once wrote, "neither a state nor a bank ever has had unrestricted power of issuing paper money,
without abusing that power; in all States, therefore, the issue of paper money ought to be under some check and control;
and none seems so proper as that of subjecting the issuers of paper money to the obligation of paying their notes, either
in gold coin or bullion." If you believed this, you would most likely be a supporter of:
a. the multiplier
b. the gold standard
c. the accelerator
d. the Phillips curve
7. If the US were on the gold standard in 1985, then
which of the following would be true?
a. the US was running a trade deficit and this would
result in an inflow of gold and a decrease in the
money supply
b. the US was running a trade surplus and this would
result in an inflow of gold and a decrease in the
money supply
c. the US was running a trade deficit and this would
result in an outflow of gold and a decrease in the
money supply
d. the US was running a trade surplus and this would
result in an outflow of gold and a decrease in the
money supply
UK
US
price of ounce of gold
20
$10
price of shirt in terms of currency
10
$8
8. Above we have a table that contains the gold price of two currencies and the domestic prices of shirts in two
countries. Based on the information in this table and the specie-flow mechanism____.
a. the price of the shirt in terms of gold would be higher in the US and we would expect an inflow of gold to the
UK
b. the price of the shirt in terms of gold would be higher in the US and we would expect an outflow of gold from the
UK
c. the price of the shirt in terms of gold would be lower in the US and we would expect an inflow of gold to the UK
d. the price of the shirt in terms of gold would be lower in the US and we would expect an outflow of gold from the
UK
price of ounce of gold
UK
US
10
$30
price of shirt in terms of
currency before war
5
$20
price of shirt in terms of
currency after war
10
$20
9. After WWI England (UK) needed to make a decision regarding a return to the gold standard, and if they did return,
they needed to set the price of the pound () in terms of gold. The basics of the problem can be seen in the table above.
One of the problems was England had very high inflation rates during WW I that increased the price of goods produced
in England. If England went back on the gold standard at the pre war price of pounds, then what could we predict in
England if wages and prices were completely flexible as specified in the Classical model?
a. there would be a decrease in taxes in England as the money supply fell in the UK
b. the domestic price level would rise in England as gold flowed into the country because of a balance of trade
surplus
c. the domestic money supply would fall in the England as gold flowed out of the country as the result of a trade
deficit
d. there would be an increase in saving in England and this would push up interest rates and lead to increases in US
imports from the UK
10. Based on the nature of the economy reflected in this AS-AD
diagram, which of the following would be the preferred policy for
expanding the level of output in the economy?
a. an increase in the price of oil
b. increasing yearly immigration
c. an increase in income tax rates
d. a cut in inefficient government spending
11. "When the panic of 1929 suddenly wiped out the whole value of many stocks and sharply reduced the values of
others, a great number of people who had though themselves rich, or at least well-off, found themselves with much less
than they had thought they had, or with nothing at all. By [the] millions they quit buying anything except what they had
to save to stay alive. This drop in spending threw the stores into trouble, and they quit ordering [new products] and
discharged clerks. When orders stopped the factories shut down, and factory workers had no jobs" This quote
describes:
a. the multiplier
b. the Quantity Theory
c. the accelerator d. the Phillips curve
12. The Great Depression was a truly momentous time in US history, one where US policy makers turned to the
theories of Keynes for the basis of policies designed to get the US out of the depression. While all of the following
would be theoretically possible policies for getting the economy out of the Great Depression, which was the fiscal
policy favored by Keynes in an environment where both businesses and individuals suffered from a lack of confidence?
a. a tax cut to businesses
b. a reduction in interest rates
c. an increase in the money supply
d. an increase in government spending
13. What can we do to get the economy moving since if we don't, the voters will take it out on us? This was the
problem facing George Bush II in 2004 because he knew that George I had been denied a second term for the poor
performance of the economy. One of the pieces of the Bush revival policy was an increase in government spending on
the war in Iraq. Let's assume you have been studying the economy for some years and that you have read the section on
multipliers and know the multiplier is 3. If you knew the economy had to expand by $1,200 million, what would you
suggest as the appropriate policy?
a. an increase in the money supply of $400 million
b. a decrease taxes of $200 million
c. an increase in interest rates of 4 percent
d. an increase in government spending of $400 million
14. In the early 2000s the Bush administration worried about the economy knowing that the president's father had been
denied a second term for the poor performance of the economy. One of the pieces of the Bush revival policy was an
increase in government spending on the war in Iraq. Let's assume that you have been studying the economy for some
years and that you have read the section on multipliers and want to relate it to the expenditure program. If you found
out that when there was a $200 B spending increase the economy reacted by expanding $600 B, what is the tax
multiplier?
a. .33
b. 2
c. 3
d. 4
15. There is no question that URI's location in Kingston has a positive economic effect on the Kingston area. If URI
were to expand its operation to accommodate more students, then the economic multiplier would be bigger if we
calculated it for _____. [Would the impact be bigger if we looked at just what happens in Kingston, or what happens in
South County, or the state?]
a. Kingston
b. South County
c. Rhode Island
d. it is the same for all geographical areas
16. The reports on the Japanese economy were not good: it appears that Japan has slipped back into a recession. Which
of the following proposals would be an appropriate fiscal policy, according to a Keynesian, to help get the Japanese
economy moving again?
a. a cut in inefficient government spending
b. an increase in income tax rates to finance pensions
c. a build-up of the Japanese military
d. a decrease in the money supply