ECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder

Transcription

1 ECON 3312 Macroeconomics Exam 2 Spring 2017 Prof. Crowder Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose the economy is currently operating on both the LM curve and the IS curve. Which of the following is true for this economy? A) The money supply equals money demand. B) Production equals demand. C) The quantity supplied of bonds equals the quantity demanded of bonds. D) Financial markets are in equilibrium. E) all of the above 1) 2) Macroeconomic equilibrium requires. A) equilibrium in the goods market B) equilibrium in neither the goods nor the money market C) equilibrium in both the goods and money markets D) equilibrium in the money market 2) 3) A decline in the money stock will A) not have any effect on the LM schedule B) shift the LM schedule to the right C) shift the LM schedule to the left D) shift the IS schedule downward and to the right 3) 4) When people are holding money in excess of their demand for money balances. A) the central bank buys bonds to correct the imbalance B) the nominal interest rate will fall C) they increase their purchases of goods and services 4) 5) If the nominal interest rate is above the equilibrium level. A) purchases of bonds and other assets will cause the interest rate to fall B) the opportunity cost of holding money is low, and is rising C) issuance of bonds and other assets will cause the supply of real money balances to increase 5) 6) In the classical model A) fiscal policy cannot influence output B) neither fiscal nor monetary policy can influence output C) both fiscal and monetary policy will have larger impacts on income D) none of the above 6) 7) Suppose policy makers decide to reduce taxes. This fiscal policy action will cause which of the following to occur? A) output will change causing a change in money demand and a shift of the LM curve. B) the LM curve shifts and the economy moves along the IS curve. C) both the IS and LM curves shift. D) neither the IS nor the LM curve shifts. E) the IS curve shifts and the economy moves along the LM curve. 7) 1

2 8) The traces out the points for which total quantity of goods produced equals total quantity of goods demanded. A) investment schedule B) IS curve C) consumption function D) LM curve 8) 9) If M d = 3, r and M s = 2,000, the MPC =.85, G=100, and T = 120, then the equilibrium interest rate is A) 0.25 B) 2.5 C) 25 D) 5.0 9) 10) The equilibrium expenditure multiplier will be greater, i.e. the crowding out effect will be smaller, when A) Ly is small, i.e. the smaller is the income responsiveness of the demand for money. B) Ir is small, i.e. the smaller is the interest responsiveness of investment expenditures. C) Lr is big, i.e. the greater is the interest responsiveness of the demand for money. D) All of the above tend to make the equilibrium multiplier greater. 11) If aggregate output is above its equilibrium level. A) actual output is below planned expenditure B) firms will tend to replenish their low inventories driving output up toward equilibrium C) there is an excess supply of goods 10) 11) 12) 12) By referring to Figure above, an increase in the money stock A) leaves the LM curve unchanged at LM0 B) shifts the LM schedule to the left from LM0 to LM2 C) shifts neither the IS nor the LM schedule D) shifts the LM schedule to the right from LM0 to LM1 2

3 Situation 20-2 Assume a closed economy. Suppose that autonomous consumption equals $400, planned investment equals $500, government expenditure equals $200, taxes equals $50, and the mpc equals ) Using the information in situation 20-2, if government increases their spending by $50 and increases taxes by 50, then equilibrium aggregate output will change by A) -$50. B) $100. C) $50. D) -$ ) 14) If aggregate demand falls short of current output, business firms will production to inventories. A) expand; build up B) cut; keep from accumulating C) cut; build up D) expand; keep from accumulating 14) 15) As the nominal interest rate increases. A) it becomes more costly to hold money instead of bonds B) the opportunity cost of holding money rises C) the quantity of money demanded falls 15) 16) The money demand curve will shift to the right when which of the following occurs? A) an increase in income B) a reduction in the interest rate C) an increase in the money supply 16) 17) In the ISLM framework, an expansionary monetary policy causes aggregate output to and the interest rate to, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase 17) 18) Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest rate. Given this information, we know that the bond's price must be A) $950. B) $ C) $1150. D) $ ) 19) A rise in the price of a bond causes the yield of the bond to A) rise. B) fall. C) remain unchanged. D) rise if it's a short-term bond, fall if it's a long-term bond. 19) 20) The interest rate will increase as a result of which of the following events? A) an increase in income B) an open market purchase of bonds by the central bank C) a reduction in income 20) 3

4 21) Consider the situation in which the opportunity cost of holding money balances is so low that transactions costs make buying bonds unprofitable. If the central bank conducts a helicopter drop what is the likely outcome? A) A decline in the interest rate. B) The new money balances will simply be held by economic agents. C) An increase in bond prices. D) An increase in investment spending by firms. 21) 22) Let C = (Y-T), planned investment equals 150, and T equals 200. If the equilibrium level of income is 2,000, then the level of government spending needed to make this true is A) 250 B) 100 C) 200 D) ) The money demand curve shifts to the right when A) there is an increase in the riskiness of interest-bearing assets B) there is a decrease in the interest rate C) income increases D) income decreases 24) If the consumption function is C = YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by A) $25. B) $70. C) $50. D) $ ) 23) 24) 25) Assume that autonomous consumption equals $200 and disposable income equals $1000. If total consumption equal $800, then the mpc equals A) 0.2. B) 0.6. C) 0.8. D) ) IS Graph 2 26) On the graph above, a possible cause of the rightward shift of the IS curve is an increase in. A) money supply B) taxes C) interest rates D) the exchange rate 26) 4

5 27) A tax cut disposable income, consumption expenditure, and shifts the IS curve to the, everything else held constant. A) decreases; decreases; left B) increases; decreases; right C) increases; increases; right D) decreases; increases; left 27) 28) In the Keynesian money market, velocity is A) positively related to the interest rate B) independent of the interest rate C) negatively related to the interest rate D) None of the above. 29) In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift, the equilibrium level of aggregate output to fall, and the IS curve to shift to the, everything else held constant. A) up; right B) up; left C) down; right D) down; left 28) 29) 30) If the economy is on the IS curve, but is to the right of the LM curve, aggregate output will and the interest rate will. A) fall; rise B) rise; rise C) fall; fall D) rise; fall 30) Figure ) In Figure 24-1, the economy moves from point 1 to point 2 whenever A) government spending increases. B) investment expenditures unrelated to the interest rate increase. C) the money supply increases. D) either A or B occurs. 31) 32) An increase in the money supply would cause the IS curve to A) shift up and to the right. B) remain unchanged. C) shift up and to the right only if people face borrowing constraints. D) shift down and to the left. 32) 33) In the Keynesian framework, as long as output is the equilibrium level, unplanned inventory investment will remain, firms will continue to lower production, and output will continue to fall. A) below; positive B) above; negative C) below; negative D) above; positive 33) 5

6 34) If the consumption function is given by C = (Y-T) and planned investment is 150, government spending is 50, and T is 100, then equilibrium income is A) 420 B) 750 C) 600 D) ) 35) Which of the following statements concerning Keynesian ISLM analysis is true? A) For a given change in taxes, the IS curve will shift less than for an equal change in government spending. B) Expansionary fiscal policy will cause the interest rate to fall. C) Changes in net exports arising from a change in interest rates causes a shift in the IS curve. D) A fall in the money supply shifts the LM curve to the right. 35) 36) If the marginal propensity to save is equal to 0.5 in the simple Keynesian model, then a 10-unit increase in government spending will cause output to rise by A) 10 B) 5 C) 20 D) 40 37) Assume the economy is in a liquidity trap. Which of the following are true? A) fiscal policy is less effective than outside the trap. B) monetary policy is ineffective. C) none of the above. D) monetary policy is very effective. 36) 37) 38) The marginal propensity to consume represents A) the change in output caused by a one-unit change in autonomous demand. B) total income minus total taxes. C) the ratio of total consumption to disposable income. D) the level of consumption that occurs if disposable income is zero. E) the change in consumption caused by a one-unit change in disposable income. 38) 39) If output is currently 1000 below full employment GDP and the marginal prpensity to save is 10%, how much does G need to change in order to restore full employment? A) B) 500. C) D) ) 40) According to liquidity preference theory, as real income increases, so does. A) the real interest rate B) the demand for money balances C) the supply of money balances 40) 41) Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty that A) output will increase. B) both output and the interest rate will increase. C) the interest rate will decrease. D) output will decrease. E) the interest rate will increase. 41) 6

7 42) If the government reduces spending. A) consumption will increase B) the IS curve will shift to the right C) output will increase if interest rates remain fixed 42) 43) Suppose the demand for money is NOT very sensitive to the interest rate, i.e. Lr 0. Given this information, we know that A) the LM curve should be relatively steep. B) neither the IS nor the LM curve will be affected. C) the IS curve should be relatively steep. D) the LM curve should be relatively flat. E) the IS curve should be relatively flat. 43) 44) The IS curve shows the combinations of output and the real interest rate for which A) an increase in output will cause the market-clearing interest rate to be bid up. B) the labor market is in equilibrium. C) the financial asset market is in equilibrium. D) the goods market is in equilibrium. 44) 45) Everything else held constant, if aggregate output is to the left of the IS curve, then there is an excess of/for goods which will cause aggregate output to. A) demand; fall B) supply; rise C) supply; fall D) demand; rise 45) 46) 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 i. B) an increase in the interest rate (i). C) an increase in output (Y). D) a reduction in Y. 46) 47) Economists define investment as the purchase of A) any physical asset, whether new or not, used by business to increase production. B) business spending on capital and household spending on durable goods. C) a new physical asset such as a new machine or a new house. D) any physical asset used by business to increase production and the repurchase of common stock. 47) 48) The IS curve shifts to the left when. A) taxes increase B) autonomous investment increases C) autonomous consumption increases 48) 49) An increase in spending that results from expansionary policy causes the interest rate to, everything else held constant. A) fiscal; fall B) incomes; fall C) fiscal; rise D) incomes; rise 49) 50) You have just read that the Federal Reserve has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to A) shift down and to the right as the real money supply falls. B) shift up and to the left as the real money supply rises. C) shift up and to the left as the real money supply falls. D) shift down and to the right as the real money supply rises. 50) 7

8 Answer Key Testname: ECON3312_EXAM2_SPRING_2017 1) E 2) C 3) C 4) B 5) A 6) B 7) E 8) B 9) B 10) D 11) C 12) D 13) C 14) B 15) D 16) A 17) C 18) B 19) B 20) A 21) B 22) D 23) C 24) C 25) B 26) E 27) C 28) A 29) D 30) A 31) D 32) B 33) D 34) C 35) A 36) C 37) B 38) E 39) D 40) B 41) A 42) E 43) A 44) D 45) D 46) C 47) C 48) A 49) C 50) D 8