Download ECON3312 Exam2 review

Exam
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Based on our understanding of the Keynesian cross, we know with certainty that an equal and
simultaneous increase in G and T will cause
A) an increase in investment.
B) no change in output.
C) a reduction in output.
D) an increase in output.
1)
2) Which of the following occurs when disposable income is zero?
A) saving must be zero
B) consumption must be zero
C) saving must be positive
D) consumption is negative
E) none of the above
2)
3) The IS curve will shift to the right when which of the following occurs?
A) a reduction in the interest rate
B) an increase in government spending
C) an increase in the money supply
D) all of the above
E) none of the above
3)
4) Which of the following is a component of money?
A) coins held by the nonbank public
C) checkable deposits
4)
B) bills held by banks
D) all of the above
5) Suppose a one-year discount bond offers to pay $1000 in one year and currently sells for $950.
Given this information, we know that the interest rate on the bond is
A) 10%.
B) 90%.
C) 9.5%.
D) 110%.
E) 5.3%.
5)
6) Consider an initial IS-LM equilibrium with normally-sloped curves. An increase in government
spending takes us to a new equilibrium with ________ income and ________ interest rate.
A) lower, an unchanged
B) higher, a lower
C) an unchanged, a higher
D) an unchanged, a lower
E) higher, a higher
6)
7) Suppose there is a Fed purchase of bonds and simultaneous tax cut. We know with certainty that
this combination of policies must cause
A) a reduction in Y.
B) an increase in output (Y).
C) an increase in the interest rate (i).
D) a reduction in i.
7)
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8) The IS curve shifts to the left when ________.
A) autonomous investment increases
B) autonomous consumption increases
C) taxes increase
D) all of the above
E) none of the above
8)
9) Which of the following is a characteristic of bonds?
A) pay zero nominal interest
B) are sold for a price that varies inversely with the interest rate
C) can be used for transactions
D) all of the above
E) none of the above
9)
10) Suppose the consumption equation is represented by the following: C = 250 + .75YD. The simple
expenditure multiplier in this economy is
A) 1.
B) 5.
C) .25.
D) .75.
11) When a closed economy is in equilibrium, we know with certainty that
A) I = S + (G-T).
B) I = S.
C) I = S + (T-G).
10)
E) 4.
11)
D) G = T and S = I.
12) Suppose the economy is operating on the LM curve but not on the IS curve. Given this
information, we know that
A) the money market and goods market are in equilibrium and the bond market is not in
equilibrium.
B) the money, bond and goods markets are all in equilibrium.
C) the money market and bond markets are in equilibrium and the goods market is not in
equilibrium.
D) neither the money, bond, nor goods markets are in equilibrium.
E) the goods market is in equilibrium and the money market is not in equilibrium.
12)
13) For the U.S. economy, which of the following represents the largest component of GDP?
A) exports
B) investment
C) government spending
D) imports
E) none of the above
13)
14) Suppose there is a simultaneous fiscal expansion and monetary contraction. We know with
certainty that
A) both output and the interest rate will increase.
B) the interest rate will increase.
C) the interest rate will decrease.
D) output will increase.
E) output will decrease.
14)
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15) From any point below the current LM curve, money market equilibrium can be restored by some
combination of a ________ income and a ________ interest rate that ________ the demand for
money.
A) higher, higher, increases
B) lower, higher, increases
C) higher, lower, increases
D) lower, higher, reduces
E) higher, lower, reduces
15)
Figure 4-5
16) In Figure 4‐5, the goods market is in equilibrium
A) only at point E.
B) at points A and E.
C) at points A, B, E, and C.
D) at points B, C, and E.
E) at points E and D.
16)
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IS Graph 2
17) On the graph above, if the economy is at point A when the real interest rate falls, the economyʹs
new situation might be indicated by point ________.
A) A
B) B
C) C
D) D
E) none of the above
17)
18) An increase in the money supply will cause an increase in which of the following variables?
A) consumption
B) investment
C) output
D) all of the above
E) none of the above
18)
19) If C = 2000 + .9YD, what increase in government spending must occur for equilibrium output to
19)
increase by 1000?
A) 100
B) 200
C) 250
D) 1000
E) 500
20) Which of the following equals Aggrgate Expenditures in a closed economy?
A) C + I + G + X
B) C + I + G + IM - X
C) C + I + G + X - IM
D) none of the above
20)
21) A decrease in income ________.
A) leads to a leftward shift of the money demand curve
B) lowers money demand for any given interest rate
C) lowers interest rates ceteris paribus
D) all of the above
E) none of the above
21)
22) The money supply is controlled by the
A) stock of gold in the economy.
C) Federal Reserve System.
22)
B) President of the United States.
D) New York Stock Exchange.
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23) Which of the following generally occurs when a central bank pursues contractionary monetary
policy?
A) the central bank sells bonds and the interest rate increases.
B) the central bank purchases bonds and the interest rate decreases.
C) the central bank purchases bonds and the interest rate increases.
D) the central bank sells bonds and the interest rate decreases.
23)
24) Which of the following best defines the LM curve?
A) illustrates the effects of changes in i on investment
B) illustrates the effects of changes in i on desired money holdings by individuals
C) the combinations of i and Y that maintain equilibrium in financial markets
D) the combinations of i and Y that maintain equilibrium in the goods market
24)
25) According to liquidity preference theory, as real income increases, so does ________.
A) the supply of real money balances
B) the demand for real money balances
C) the real interest rate
D) all of the above
E) none of the above
25)
26) Suppose the consumption equation is represented by the following: C = 250 + .75YD, then private
26)
savings is
A) -250+0.75Y D.
B) -1000+0.25Y D.
C) -1000+0.75Y D.
D) -250+0.25Y D.
27) If government spending and taxes decrease by the same amount,
A) the IS curve shifts rightward.
B) the LM curve shifts downward.
C) the IS curve shift leftward.
D) the IS curve does not shift.
27)
28) Suppose fiscal policy makers implement a policy to reduce the size of a budget deficit. Based on
the IS-LM model, we know with certainty that the following will occur as a result of this fiscal
policy action.
A) investment spending will increase.
B) investment spending may increase, decrease, or not change.
C) there will be no change in investment spending.
D) investment spending will decrease.
E) none of the above
28)
29) As the nominal interest rate increases ________.
A) it becomes more costly to hold bonds instead of money
B) the quantity of money demanded rises
C) the opportunity cost of holding money rises
D) all of the above
E) none of the above
29)
30) Which of the following is included in G?
A) medicare
B) government purchases
C) interest payments on the government debt
D) social security payments
E) all of the above
30)
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Answer Key
Testname: ECON3312_EXAM2_REVIEW
1) D
2) E
3) B
4) D
5) E
6) E
7) B
8) C
9) B
10) E
11) C
12) C
13) E
14) B
15) D
16) B
17) B
18) D
19) A
20) D
21) D
22) C
23) A
24) C
25) B
26) D
27) C
28) B
29) C
30) B
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