MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
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1 Econ 330 Spring 2017: FINAL EXAM Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Tobin's q theory suggests that monetary policy may affect investment spending through its impact on A) stock prices. B) cash flow. C) interest rates. D) bond prices. 2) The subprime financial crisis caused a recession because of the in adverse selection and moral hazard problems and the in housing prices. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase 3) Everything else held constant, a decrease in government spending will cause the IS curve to shift to the and aggregate demand will. A) right; increase B) right; decrease C) left; increase D) left; decrease 1) 2) 3) 4) The aggregate supply curve shows the relationship between 4) A) the inflation rate and the level of inputs. B) the wage rate and the level of employment. C) the inflation rate and the level of aggregate output supplied. D) the level of inputs and aggregate output. 5) The short-run aggregate supply curve shifts to the right when 5) A) expected inflation is lower. B) expected inflation is higher. C) output gap is lower. D) output gap is higher. 6) A contractionary monetary policy decreases net exports by interest rates and the value of the dollar. A) raising nominal; increasing B) lowering real; decreasing C) raising real; increasing D) lowering real; increasing 6) Situation 20-1 Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals ) Using the information in Situation 20-1, if aggregate output is equal to $10,000, then unplanned inventory investment equals A) -$1000 B) -$100 C) $0 D) $100 8) When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that A) the monetary policy curve shifted upward. B) there was a downward movement along the monetary policy curve. C) the monetary policy curve shifted downward. D) there was an upward movement along the monetary policy curve. 7) 8)
2 9) A shift in tastes toward foreign goods net exports in the U.S. and causes the quantity of aggregate output demanded to in the U.S., everything else held constant. A) increases; rise B) decreases; fall C) increases; fall D) decreases; rise 10) Everything else held constant, when output is the natural rate level, wages will begin to, increasing short-run aggregate supply. A) below; fall B) below; rise C) above; rise D) above; fall 11) Everything else held constant, increased demand for a country's causes its currency to appreciate in the long run, while increased demand for causes its currency to depreciate. A) imports; exports B) imports; imports C) exports; exports D) exports; imports 9) 10) 11) 12) Points on the IS curve satisfy market equilibrium. 12) A) goods B) money C) stock D) bond 13) According to aggregate demand and supply analysis, the favorable supply shock of had the effect of A) increasing aggregate output, lowering unemployment, and raising inflation. B) increasing aggregate output, lowering unemployment, and lowering inflation. C) decreasing aggregate output, raising unemployment, and raising inflation. D) decreasing aggregate output, raising unemployment, and lowering inflation. 13) 14) Which of the following is not a factor lowering long-term interest rates today? 14) A) economic output surging past full capacity B) European Central Bank money printing C) French elections D) corporations buying Treasury bonds 15) flexible wages and prices imply that the short-run aggregate supply curve is. 15) A) More; flatter B) Less; steeper C) Less; vertical D) More; steeper 16) A depreciation of the U.S. dollar makes American goods cheaper relative to foreign goods, resulting in a in net exports in the U.S. and a shift of the IS curve in the U.S., everything else held constant. A) rise; leftward B) fall; leftward C) rise; rightward D) fall; rightward 17) Everything else held constant, if workers expect an increase in inflation, aggregate supply. A) long-run; increases B) long-run; decreases C) short-run; decreases D) short-run; increases 18) Everything else held constant, an increase in government spending aggregate. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply 16) 17) 18) 19) The IS curve shifts to the left when 19) A) taxes increase. B) government spending increases. C) autonomous planned investment spending increases. D) the money supply increases.
3 20) The labor force participation rate fell from 67% to 63% over the last 8 years due to all of the following except: A) retiring baby boomers. B) rising disability insurance claims. C) rising number of discouraged workers. D) rising population growth. 21) Inflationary pressures caused the FOMC to increase the federal funds rate by ¼ of a percentage point in June 2004, and by exactly the same amount at every subsequent FOMC meeting through June of These actions A) shifted the monetary policy curve downward. B) caused a downward movement along the monetary policy curve. C) caused an upward movement along the monetary policy curve. D) shifted the monetary policy curve upward. 22) When Americans or foreigners expect the return on assets to be high relative to the return on assets, there is a demand for dollar assets, everything else held constant. A) foreign; dollar; constant B) foreign; dollar; higher C) dollar; foreign; higher D) dollar; foreign; constant 23) The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise interest rates, thereby the level of equilibrium aggregate output., everything else held constant. A) real; raising B) nominal; lowering C) real; lowering D) nominal; raising 24) When the effects of the global financial crisis started to spread more quickly throughout the rest of the world, the U.S. dollar because demand for U.S. assets. A) appreciated; decreased B) appreciated; increased C) depreciated; increased D) depreciated; decreased 25) When interest rates fall in the United States (with the price level fixed), the value of the dollar, domestic goods become expensive, and net exports. A) falls; more; fall B) falls; less; rise C) rises; less; fall D) falls; less; fall 26) in the domestic interest rate causes the demand for domestic assets to and the domestic currency to depreciate, everything else held constant. A) A decrease; increase B) An increase; decrease C) An increase; increase D) A decrease; decrease 27) The theory of purchasing power parity cannot fully explain exchange rate movements in the short run because A) some goods are not traded between countries. B) monetary policy differs across countries. C) fiscal policy differs across countries. D) all goods are identical even if produced in different countries. 28) 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 inflation 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 20) 21) 22) 23) 24) 25) 26) 27) 28)
4 29) 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) the wealth effect. B) the household liquidity effect. C) Tobin's q theory. D) the cash flow effect. 30) in the expected future domestic exchange rate causes the demand for domestic assets to shift to the and the domestic currency to appreciate, everything else held constant. A) An increase; left B) A decrease; left C) An increase; right D) A decrease; right 31) The Federal Reserve's implementation of "Financial Repression" is best represented by which of the following: A) new regulations limit credit growth B) paying interest on excess reserves C) lowering of the Fed funds rate D) Quantitative Easing 29) 30) 31) 32) The interest rate thought to have the most important impact on aggregate demand is the 32) A) long-term interest rate. B) rate on 90-day CDs. C) T-bill rate. D) short-term interest rate. 33) Suppose the U.S. economy is producing at the natural rate of output. An appreciation of the U.S. dollar will cause in real GDP in the short run and in inflation in the long run, everything else held constant. (Assume the appreciation causes no effects in the supply side of the economy.) A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease 34) By looking at aggregate demand via its component parts, we can conclude that the aggregate demand curve is downward sloping because A) a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending. B) a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending. C) a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending. D) a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending. 35) If aggregate demand is less than the level of aggregate output, then inventory investment will be. A) planned; negative B) actual; positive C) planned; positive D) actual; negative 36) When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate, then A) aggregate demand curve shifts leftward. B) output will be unchanged. C) output will be at its potential. D) all of the above. E) both A and C. 33) 34) 35) 36)
5 37) The long-run aggregate supply curve shifts to the right when there is 37) A) a decline in the natural rate of unemployment. B) a decrease in the total amount of capital in the economy. C) a decrease in the available technology. D) a decrease in the total amount of labor supplied in the economy. 38) When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy, then A) inflation will be lower. B) output will be unchanged. C) output will be at its potential. D) inflation will be unchanged. 39) Everything else held constant, if aggregate output is to the of the IS curve, then there is an excess supply of goods which will cause aggregate output to. A) right; fall B) left; rise C) left; fall D) right; rise 38) 39) 40) The upward slope of the MP curve indicates that 40) A) the central bank raises nominal interest rates when inflation rises. B) the central bank raises real interest rates when inflation falls. C) the central bank lowers real interest rates when inflation rises. D) the central bank raises real interest rates when inflation rises. 41) The trade-weighted dollar appreciated 14% during the last 24 months due to all the following factors except: A) rising U.S. inflation rate. B) better U.S. economic growth versus rest of the world. C) foreign firms buying U.S. firms. D) Federal Reserve raising interest rates. 42) Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause in real GDP in the short run and in inflation in the short run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease 43) In the long run, a rise in a country's price level (relative to the foreign price level) causes its currency to, while a fall in the country's relative price level causes its currency to. A) appreciate; depreciate B) depreciate; depreciate C) depreciate; appreciate D) appreciate; appreciate 44) Everything else held constant, a decrease in autonomous planned investment spending will cause the IS curve to shift to the and aggregate demand will. A) right; increase B) right; decrease C) left; increase D) left; decrease 41) 42) 43) 44) 45) Lucas argues that when policies change, expectations will change thereby 45) A) changing the relationships in econometric models. B) forcing the Fed to keep its deliberations secret. C) making it easier to predict the effects of policy changes. D) causing the government to abandon its discretionary stance. 46) The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the on these assets relative to one another. A) liquidity B) risk C) interest rate D) expected return 46)
6 47) Banks have recently reported a decline in "Financial Frictions" over the last 12 months. Which of the following best approximates "financial frictions?" A) yield curve B) term spread C) credit spread D) net interest margin 48) Because prices are slow to move in the short-run, when the Federal Reserve lowers the federal funds rate A) inflation falls. B) nominal interest rates rise. C) real interest rates rise. D) real interest rates fall. 49) 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) increase aggregate demand by more than if just government spending increases. B) increase aggregate demand, but not by as much as if just government spending increases. C) not affect aggregate demand. D) decrease aggregate demand. 50) Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause in real GDP in the long run and in inflation in the long run, everything else held constant. A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease 47) 48) 49) 50)
7 1) A 2) B 3) D 4) C 5) A 6) C 7) D 8) C 9) B 10) A 11) D 12) A 13) B 14) A 15) D 16) C 17) C 18) A 19) A 20) D 21) C 22) C 23) C 24) B 25) B 26) D 27) A 28) A 29) B 30) C 31) D 32) A 33) B 34) A 35) B 36) E 37) A 38) C 39) A 40) D 41) A 42) B 43) C 44) D 45) A 46) D 47) C 48) D 49) B 50) C
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