Econ 330 Final Exam Name ID Section Number

Transcription

1 Econ 330 Final Exam Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A group of economists believe that the natural rate of output is affected by aggregate shocks. They contend that the natural rate level of unemployment and output are subject to, a departure from full employment levels as a result of past high unemployment. A) supply; systerisis B) demand; systerisis C) demand; hysterisis D) supply; hysterisis 1) 2) The Fed implements "Financial Repression" by implementing all of the following policies except: 2) A) push long-term interest rates very low. B) push real interest rates above 3%. C) let inflation increase to 2.5%. D) push short-term interest rates to zero. 3) In a period of deflation, when there is a declining price level, nominal interest rates do not necessarily indicate that the cost of borrowing is or that monetary policy is easy. A) low; low B) low; high C) high; low D) high; high 4) Everything else held constant, a balanced budget increase in government spending (that is, an increase in government spending that is matched by an identical increase in net taxes) will A) decrease aggregate demand. B) not affect aggregate demand. C) increase aggregate demand by more than if just government spending increases. D) increase aggregate demand, but not by as much as if just government spending increases. 3) 4) 5) The dollar recently appreciated 6% due to all the following factors except: 5) A) relatively fast U.S. economic growth. B) expectations that the Federal Reserve will raise interest rates before other major central banks. C) relatively low U.S. interest rates. D) rising global interest rate differentials. 6) Keynes's model of the demand for money suggests that velocity is related to. 6) A) positively; interest rates B) positively; bond values C) positively; stock prices D) negatively; interest rates 7) By analyzing aggregate demand via its component parts, we can conclude that changes in the money supply A) affect aggregate demand in the opposite direction of the change in government spending. B) affect aggregate demand in the same direction as the change in government spending. C) affect the quantity of aggregate output demand. D) have no effect on aggregate demand. 7) 8) Velocity, over the business cycle, tends to 8) A) fall during economic expansions. B) stay constant. C) fall during economic contractions. D) rise during economic contractions.

2 9) By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the price level causes A) a decline in the real money supply, an increase in interest rates, a decline in investment spending, and a decline in aggregate output demand. B) a decline in the real money supply, a decline in interest rates, an increase in investment spending, and an increase in aggregate output demand. C) an increase in the real money supply, a decline in interest rates, an increase in investment spending, and an increase in aggregate output demand. D) an increase in the real money supply, an increase in interest rates, a decline in investment spending, and a decline in aggregate output demand. 10) Assuming the economy is starting at the natural rate of output and everything else held constant, the effect of in aggregate is a rise in both the price level and output in the short-run, but in the long-run the only effect is a rise in the price level. A) a decrease; demand B) an increase; demand C) a decrease; supply D) an increase; supply 9) 10) 11) The long-run aggregate supply curve is 11) A) a vertical line through the non-inflationary rate of output. B) a vertical line through the current level of output. C) a horizontal line through the current level of output. D) a vertical line through the natural rate level of output. 12) The sensitive is the demand for money to interest rates, the unpredictable velocity will be, and the link between the money supply and aggregate spending will be less clear. A) more; more B) less; more C) less; less D) more; less 13) Everything else held constant, if workers expect an increase in the price level, aggregate supply. A) long-run; decreases B) short-run; increases C) long-run; increases D) short-run; decreases 12) 13) 14) Which of the following is not a factor pushing inflation lower today? 14) A) Rising value of the dollar. B) The negative output gap. C) The unemployment rate higher than the natural unemployment rate. D) A falling budget deficit. 15) Economic theory suggests that interest rates are important than interest rates in explaining investment behavior. A) nominal; more; real B) real; less; nominal C) real; more; nominal D) market; more; real 16) According to Tobin's q theory, policy can affect spending through its effect on the prices of common stock. A) fiscal; consumption B) monetary; investment C) fiscal; investment D) monetary; consumption 15) 16)

3 17) Anything that increases the demand for foreign goods relative to domestic goods tends to the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is, everything else held constant. A) depreciate; higher B) appreciate; higher C) depreciate; lower D) appreciate; lower 17) 18) The quantity theory of money is derived from 18) A) the money supply. B) the equation of exchange. C) the Keynesian monetary transmission mechanism. D) the concept of velocity. 19) In the liquidity trap, monetary policy. 19) A) has a proportionate impact on interest rates B) has a small impact on interest rates C) has no impact on interest rates D) has a large impact on interest rates 20) A decrease in the domestic interest rate causes the demand for domestic assets to shift to the and the domestic currency to, everything else held constant. A) left; appreciate B) right; appreciate C) right; depreciate D) left; depreciate 20) 21) The long-run rate of unemployment to which an economy always gravitates is the 21) A) inflationary rate of unemployment. B) natural rate of unemployment. C) neutral rate of unemployment. D) normal rate of unemployment. 22) A decrease in the availability of raw materials that increases the price level is called a shock A) positive supply B) positive demand C) negative demand D) negative supply 23) in the expected future domestic exchange rate causes the demand for domestic assets to increase and the domestic currency to, everything else held constant. A) A decrease; depreciate B) An increase; depreciate C) A decrease; appreciate D) An increase; appreciate 22) 23) 24) If nominal GDP is $10 trillion, and the money supply is $2 trillion, velocity is 24) A) 0.2. B) 5. C) 10. D) ) Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause in real GDP in the long run and in the aggregate price level in the long run, everything else held constant. A) no change; an increase B) no change; a decrease C) a decrease; a decrease D) an increase; an increase 26) Everything else held constant, when output is the natural rate level, wages will begin to, decreasing short-run aggregate supply. A) above; fall B) above; rise C) below; fall D) below; rise 25) 26)

4 27) When inflation is defined to be a condition of a continually rising price level, economists agree with Milton Friedman's proposition that inflation is a monetary phenomenon. A) about half of practicing B) no C) almost all D) very few 28) When Americans or foreigners expect the return on assets to be high relative to the return on assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets. A) foreign; foreign B) foreign; dollar C) dollar; foreign D) dollar; dollar 29) The positively sloped short-run aggregate supply curve reflects the assumption that factor prices are A) fixed in the long run. B) perfectly flexible in both the short run and the long run. C) less flexible than output prices. D) more flexible than output prices. 30) The equation of exchange states that the quantity of money multiplied by the number of times this money is spent in a given year must equal A) real income. B) real gross national product. C) nominal income. D) velocity. 31) Everything else held constant, when the current value of the domestic currency increases, the domestic assets. A) quantity demanded of; increases B) quantity demanded of; decreases C) demand for; decreases D) demand for; increases 32) A contractionary monetary policy raises the real interest rate, causing the domestic currency to, thereby net exports. A) depreciate; raising B) appreciate; raising C) appreciate; lowering D) depreciate; lowering 27) 28) 29) 30) 31) 32) 33) The theory of purchasing power parity cannot fully explain exchange rate movements because 33) A) fiscal policy differs across countries. B) monetary policy differs across countries. C) all goods are identical even if produced in different countries. D) some goods are not traded between countries. 34) Keynes's liquidity preference theory indicates that the demand for money is related to. A) negatively; interest rates B) positively; interest rates C) negatively; income D) negatively; wealth 34)

5 35) Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. Which of the following is not one of these lessons? A) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. B) Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy. C) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms. D) Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy, thus providing a rationale for price stability as the primary long-run goal for monetary policy. 35) 36) According to Keynes's theory of liquidity preference, velocity increases when 36) A) brokerage commissions increase. B) income increases. C) wealth increases. D) interest rates increase. 37) Suppose a report was released today that showed the Euro-Zone inflation rate is running above the European Central Bank's inflation rate target. This leads people to expect that the European Central Bank will enact contractionary policy in the near future. Everything else held constant, the release of this report would immediately cause the demand for U.S. assets to and the U.S. dollar will. A) decrease; appreciate B) increase; depreciate C) decrease; depreciate D) increase; appreciate 37) 38) The labor force participation rate fell over the last six years for all the following reasons except: 38) A) rising number of discouraged workers. B) retiring baby boomers. C) rising worker mobility. D) rising disability insurance claims. 39) If the money supply is $600 and nominal income is $3,600, the velocity of money is 39) A) 1/60. B) 1/6. C) 6. D) ) in the foreign interest rate causes the demand for domestic assets to and the domestic currency to appreciate, everything else held constant. A) A decrease; decrease B) A decrease; increase C) An increase; increase D) An increase; decrease 41) If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will A) rise by 2 percent. B) fall by 2 percent. C) rise by 6 percent. D) fall by 6 percent. 42) Everything else held constant, an increase in planned investment expenditure aggregate. A) decreases; demand B) increases; supply C) decreases; supply D) increases; demand 43) Suppose the economy is producing at the natural rate of output. An open market sale of bonds by the Fed will cause in real GDP in the short run and in the aggregate price level in the short run, everything else held constant. A) no change; a decrease B) an increase; an increase C) a decrease; a decrease D) no change; an increase 40) 41) 42) 43)

6 44) An expansionary monetary policy may cause asset prices to rise, thereby reducing the likelihood of financial distress and causing consumer durable and housing expenditures to rise. This monetary transmission mechanism is referred to as A) Tobin's q theory. B) the wealth effect. C) the cash flow effect. D) the household liquidity effect. 44) 45) Evidence suggests that a liquidity trap is possible when. 45) A) real interest rates are at zero B) nominal interest rates are at or just above zero C) nominal interest rates are at zero D) real interest rates are at or just above zero 46) Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause in real GDP in the short run and in the aggregate price level in the long run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy.) A) a decrease; a decrease B) no change; an increase C) no change; a decrease D) an increase; an increase 47) Suppose the U.S. economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Federal Reserve will cause in real GDP in the long run and in the aggregate price level in the long run, everything else held constant. A) no change; an increase B) an increase; an increase C) no change; a decrease D) a decrease; a decrease 48) If monetary policy can influence prices and conditions in markets, then it can affect spending through channels other than the traditional interest-rate channel. A) asset; credit B) commodity; labor C) asset; labor D) commodity; credit 49) If the U.S. Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices, and Japanese demand for American exports increases at the same time, then, in the long run, everything else held constant. A) there will be no effect on the Japanese yen relative to the U.S. dollar B) the Japanese yen will depreciate relative to the U.S. dollar C) the Japanese yen will either appreciate, depreciate or remain constant against the U.S. dollar D) the Japanese yen will appreciate relative to the U.S. dollar 46) 47) 48) 49) 50) The demand for money as a cushion against unexpected contingencies is called the 50) A) speculative motive. B) precautionary motive. C) transactions motive. D) insurance motive.

7 1) C 2) B 3) A 4) D 5) C 6) A 7) B 8) C 9) C 10) B 11) D 12) A 13) D 14) D 15) C 16) B 17) C 18) B 19) C 20) D 21) B 22) D 23) D 24) B 25) A 26) B 27) C 28) C 29) C 30) C 31) B 32) C 33) D 34) A 35) B 36) D 37) D 38) C 39) C 40) B 41) B 42) D 43) C 44) D 45) C 46) B 47) A 48) A 49) B 50) B