MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Transcription

1 Econ 330 Spring 2015: FINAL EXAM Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) 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) increase; appreciate B) decrease; depreciate C) increase; depreciate D) decrease; appreciate 2) According to aggregate demand and supply analysis, America's involvement in the Vietnam War had the effect of A) increasing aggregate output, lowering unemployment, and raising the inflation. B) increasing aggregate output, raising unemployment, and raising the inflation. C) decreasing aggregate output, raising unemployment, and lowering the inflation. D) decreasing aggregate output, lowering unemployment, and lowering the inflation. 3) in the domestic interest rate causes the demand for domestic assets to and the domestic currency to appreciate, everything else held constant. A) An increase; increase B) A decrease; increase C) An increase; decrease D) A decrease; decrease 4) Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the and aggregate demand will. A) right; decrease B) right; increase C) left; decrease D) left; increase 5) Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a in net worth, which the adverse selection problem, thereby increased lending to finance investment spending. A) rise; increases; discouraging B) rise; reduces; encouraging C) decline; increases; encouraging D) decline; reduces; discouraging 6) By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes A) a decline in real interest rates, a decrease in investment spending, and an increase in B) an increase in real interest rates, an increase in investment spending, and a decline in C) a decline in real interest rates, an increase in investment spending, and an increase in D) an increase in real interest rates, a decline in investment spending, and a decline in 1) 2) 3) 4) 5) 6)

2 7) Lucas argues that when policies change, expectations will change thereby 7) A) causing the government to abandon its discretionary stance. B) changing the relationships in econometric models. C) forcing the Fed to keep its deliberations secret. D) making it easier to predict the effects of policy changes. 8) Which of the following is NOT one of the factors pushing inflation down today? 8) A) Negative output gap. B) Unemployment rate being greater than the natural unemployment rate. C) The falling value of the dollar. D) Falling oil prices. 9) Keynes believed that changes in autonomous spending were dominated by changes in 9) A) taxes. B) investment spending. C) consumer expenditure. D) autonomous consumer expenditure. E) none of the above. 10) 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 10) 11) In the simple Keynesian model, equilibrium aggregate output is determined by 11) A) aggregate demand. B) the national demand for labor. C) the price level. D) aggregate supply. 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 contained in Situation 20-1, if autonomous consumption increases by $100, then equilibrium aggregate output will change by A) -$1,000. B) -$100. C) $100. D) $1, ) 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 12) 13) 14) The fact that an economy always returns to the natural rate level of output is known as 14) A) the self-correcting mechanism. B) the natural rate of unemployment. C) the price-adjustment mechanism. D) the excess demand hypothesis. 15) The long-run rate of unemployment to which an economy always gravitates is the 15) A) neutral rate of unemployment. B) normal rate of unemployment. C) inflationary rate of unemployment. D) natural rate of unemployment. 16) A contractionary monetary policy decreases net exports by interest rates and the value of the dollar. A) raising nominal; increasing B) lowering real; increasing C) raising real; increasing D) lowering real; decreasing 16)

3 17) The describes points for which the goods market is in equilibrium. 17) A) IS curve B) consumption function C) investment schedule D) LM curve 18) If workers demand and receive higher real wages (a successful wage push), the cost of production and the short-run aggregate supply curve shifts. A) rises; leftward B) falls; rightward C) rises; D) falls; leftward rightward 19) 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, but not by as much as if just government spending increases. B) not affect aggregate demand. C) decrease aggregate demand. D) increase aggregate demand by more than if just government spending increases. 20) Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not credible, then A) the public's expected inflation will remain unchanged. B) the short-run aggregate supply curve will rise. C) economic contraction will be worse. D) all of the above. E) both B and C. 21) 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) dollar; dollar B) foreign; foreign C) foreign; dollar D) dollar; foreign 18) 19) 20) 21) 22) Everything else held constant, an autonomous tightening of monetary policy will cause 22) A) aggregate demand to decrease. B) the quantity of aggregate demand to decrease. C) the quantity of aggregate demand to increase. D) aggregate demand to increase. 23) An increase in interest rates 23) A) reduces the value of the dollar, increasing net exports and equilibrium output. B) reduces the value of the dollar, net exports, and equilibrium output. C) increases the value of the dollar, net exports, and equilibrium output. D) increases the value of the dollar, reducing net exports and equilibrium output. 24) During the beginning on the global financial crisis in the United States when the effects of the crisis were mostly confined within the United States, the U. S. dollar because demand for U.S. assets. A) appreciated; decreased B) depreciated; decreased C) appreciated; increased D) depreciated; increased 24) 25) Everything else held constant, aggregate demand increases when 25) A) the money supply decreases. B) taxes increase. C) net exports decrease. D) planned investment spending increases.

4 26) When the Federal Reserve implements a policy of Financial Repression, it includes all of the following except: A) pushing long-term rates very low. B) pushing short-term rates to zero. C) letting inflation increase to 25%. D) inverting the Treasury Yield Curve. 26) 27) The long-run aggregate supply curve shifts to the right when there is 27) A) a decrease in the available technology. B) a decrease in the total amount of labor supplied in the economy. C) a decline in the natural rate of unemployment. D) a decrease in the total amount of capital in the economy. 28) The theory of PPP suggests that if one country's price level falls relative to another's, its currency should A) appreciate in the short run. B) depreciate in the long run. C) depreciate in the short run. D) appreciate in the long run. 28) 29) The upward slope of the MP curve indicates that 29) A) the central bank raises real interest rates when inflation rises. B) the central bank lowers real interest rates when inflation rises. C) the central bank raises real interest rates when inflation falls. D) the central bank raises nominal interest rates when inflation rises. 30) 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) expected return C) interest rate D) risk 30) 31) The interest rate thought to have the most important impact on aggregate demand is the 31) A) short-term interest rate. B) long-term interest rate. C) T-bill rate. D) rate on 90-day CDs. 32) Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause in the unemployment rate in the long run and in inflation in the short run. A) an increase; an increase B) no change; no change C) no change; a decrease D) a decrease; a decrease 33) Suppose the economy is producing at the natural rate of output and the government passes legislation that severely restricts a company's ability to reduce production costs via outsourcing. Everything else held constant, this policy action will cause in the unemployment rate in the short run and in inflation in the short run. A) a decrease; a decrease B) a decrease; an increase C) an increase; an increase D) no change; no change 34) In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift, the equilibrium level of aggregate output to rise, and the IS curve to shift to the, everything else held constant. A) down; left B) up; right C) down; right D) up; left 32) 33) 34) 35) Which of the following is NOT one of the factors reducing the Labor Force Participation Rate? 35) A) Large number of discouraged workers. B) Faster economic growth. C) Retiring baby boomers. D) Rising disability insurance claims.

5 36) If net exports increase by 250 and the mpc is 0.75, equilibrium aggregate output increases by 36) A) 250. B) 500. C) 750. D) ) A shift in tastes toward American 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) decreases; fall B) increases; fall C) increases; rise D) decreases; rise 38) Evidence from the United States during the period indicates that the value of the dollar and the measure of the interest rate rose and fell together. A) expected B) nominal C) actual D) real 39) Which of the following was NOT one of the factors pushing gold prices higher in the last few years? A) Low interest rates. B) Expected appreciation of the dollar. C) Fears of hyper-inflation. D) Unusual levels of uncertainty. 37) 38) 39) 40) flexible wages and prices imply that the short-run aggregate supply curve is. 40) A) Less; steeper B) less; vertical C) More; flatter D) More; steeper 41) Based on the Taylor Principle, a central bank's endogenous response of decreasing interest rates when inflation falls A) shifts the monetary policy curve downward. B) causes an upward movement along the monetary policy curve. C) shifts the monetary policy curve upward. D) causes a downward movement along the monetary policy curve. 42) In the Keynesian framework, as long as output is the equilibrium level, unplanned inventory investment will remain and firms will continue to raise production. A) below; B) above; positive C) below; positive D) above; negative negative 43) Keynes was especially interested in explaining movements of because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase in a similar economic situation. A) aggregate output; employment B) aggregate output; wages C) wage rates; wages D) wage rates; employment 44) When the interest rate is, investments in physical capital will earn more than the cost of borrowed funds, so planned investment spending is. A) high; few; low B) high; few; high C) low; many; low D) low; few; high E) high; many; high 45) If actual output is greater than equilibrium output, firms will output to keep from inventories. A) decrease; accumulating B) decrease; depleting C) increase; accumulating D) increase; depleting 41) 42) 43) 44) 45)

6 46) The short-run aggregate supply curve shifts to the right when 46) A) expected inflation is lower. B) output gap is lower. C) expected inflation is higher. D) output gap is higher. 47) A decrease in unplanned inventory investment for the entire economy equals the excess of 47) A) aggregate supply over output. B) output over aggregate supply. C) output over aggregate demand. D) aggregate demand over output. 48) Everything else held constant, if aggregate output is to the of the IS curve, then there is an excess demand of goods which will cause aggregate output to. A) right; fall B) right; rise C) left; rise D) left; fall 49) The states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries. A) quantity theory of money B) law of one price C) theory of purchasing power parity D) theory of money neutrality 48) 49) Situation 20-2 Assume a closed economy. Suppose that autonomous consumption equals $400, planned investment equals $500, government expenditure equals $200, net taxes equals $50, and the mpc equals ) Using the information in situation 20-2, if government increases their spending by $50 and increases net taxes by 50, then equilibrium aggregate output will change by A) -$50. B) $50. C) -$100. D) $ )

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