Sample 2nd MT Macro MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The long-run aggregate supply curve is vertical because A) potential GDP is independent of the price level. B) potential GDP never changes. C) actual output can never exceed, even temporarily, the output rate implied by the economyʹs long-run aggregate supply curve. D) a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach. E) a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP. 1) 2) Everything else remaining the same, an increase in the quantity of money A) shifts the aggregate supply curve leftward. B) shifts the aggregate demand curve rightward. C) creates a movement down along the aggregate demand curve. D) shifts the aggregate supply curve rightward. E) shifts the aggregate demand curve leftward. 2) 1
Use the figure below to answer the following questions. Figure 26.3.3 3) Refer to Figure 26.3.3. In which of the graphs would we predict that eventually the price level will rise and real GDP will fall, all else remaining the same? A) (a) only B) (d) only C) (b) only D) (c) and (d) E) (c) only 3) 4) Refer to Figure 26.3.3. Which one of the graphs illustrates a below full-employment equilibrium? A) (a) only B) (b) only C) (c) only D) (d) only E) both (c) and (d) 4) 5) Which one of the following newspaper quotations describes a leftward shift of the LAS curve? A) ʺRecent higher wage settlements are expected to cause higher inflation this year.ʺ B) ʺThe recent tornadoes destroyed many factories in Calgary and Edmonton.ʺ C) ʺGrowth has been unusually high the last few years due to more women entering the work force.ʺ D) ʺThe increase in consumer spending is expected to lead to inflation, without any increase in real GDP.ʺ E) ʺThe decrease in consumer spending may lead to a recession.ʺ 5) 2
Use the figure below to answer the following question. Figure 30.3.2 6) Refer to Figure 30.3.2. The figure shows the economy of Freezone. Potential GDP is $250 billion. To return the economy to full employment, the central bank can the overnight rate and securities. A) lower; not change its holdings of B) raise; sell C) lower; sell D) lower; buy E) raise; buy 6) 7) Which one, if any, of the following events shift the short-run aggregate supply curve but not the long-run aggregate supply curve? A) An advance in technology. B) An increase in the full-employment quantity of labour. C) A change in factor prices. D) A change in the quantity of capital. E) None of the above. 7) 8) A recessionary gap is the amount by which A) the price level must adjust to achieve full employment. B) real GDP exceeds potential GDP. C) demand will increase to achieve full employment at a given price level. D) potential GDP exceeds real GDP. E) the supply curve must increase to achieve full employment at a given price level. 8) 3
Use the figure below to answer the following questions. Figure 30.3.1 9) Refer to Figure 30.3.1. Everything else remaining the same, which graph best illustrates the effect of a Bank of Canada open market purchase of government securities? A) (a) B) (b) C) (c) D) (d) E) none of the above 9) 10) Which of the following would not increase the budget deficit? A) a decrease in investment income B) an increase in interest on the government debt C) an increase in indirect taxes D) an increase in government expenditures on goods and services E) an increase in government transfer payments 10) 11) Monetary policy is difficult to conduct because A) the interest rate always rises. B) the tools available donʹt work. C) politicians frequently block the policyʹs intended outcomes. D) the monetary policy transmission process is long and drawn out. E) it takes several years for the real GDP growth rate to respond to a change in the interest rate. 11) 4
Use the figure below to answer the following questions. Figure 26.3.2 12) Refer to Figure 26.3.2. Short-run macroeconomic equilibrium real GDP in Mythlo is billion. A) $500 B) $650 C) $550 D) $475 E) $600 12) 5
Use the figure below to answer the following questions. Figure 26.1.1 13) Refer to Figure 26.1.1. Which graph illustrates what happens when factor prices decrease? A) (a) B) (b) C) (c) D) (d) E) (a) and (b) 13) 6
Use the figure below to answer the following questions. Figure 24.4.1 14) Refer to Figure 24.4.1. Everything else remaining the same, which graph best shows an increase in real GDP? A) (a) B) (b) C) (c) D) (d) E) (a) and (c) 14) 15) The reserve ratio of a depository institution is the A) ratio of a bankʹs total reserves that are held in an account with the Bank of Canada only to total deposits. B) ratio of a bankʹs total reserves that are held in its vault or on deposit with the Bank of Canada to total deposits. C) ratio of excess reserves to total deposits. D) ratio of a bankʹs total reserves that a bank regards as necessary to conduct its business to total deposits. E) ratio of a bankʹs total reserves that are held in its vault in cash only to total deposits. 15) 7
16) In an open market operation aimed at increasing expenditure, the Bank of Canada A) sells government bonds, decreasing bank reserves, increasing lending, increasing the overnight rate. B) sells government bonds, decreasing bank reserves, decreasing lending, decreasing the overnight rate. C) buys government bonds, increasing bank reserves, increasing lending, decreasing the overnight rate. D) buys government bonds, increasing bank reserves, increasing lending, increasing the overnight rate. E) sells government bonds, decreasing bank reserves, decreasing lending, increasing the overnight rate. 16) 17) The short-run aggregate supply curve indicates A) the relationship between the price level and real GDP demanded by consumers, investors, governments, and net exporters. B) the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant. C) the relationship between the price level and the natural unemployment rate. D) the various quantities of real GDP producers supply at different income levels. E) the relationship between the purchasing power of wages and the quantity of labour supplied by households. 17) 18) Which one of the following newspaper quotations describes a movement along an LAS curve? A) ʺRecent higher wage settlements are expected to cause higher inflation this year.ʺ B) ʺThe increase in consumer spending is expected to lead to inflation, without any increase in real GDP.ʺ C) ʺThe recent tornadoes destroyed many factories in Calgary and Edmonton.ʺ D) ʺThe decrease in consumer spending may lead to a recession.ʺ E) ʺGrowth has been unusually high the last few years due to more women entering the labour force.ʺ 18) 19) All of the following will raise the price level except A) aggregate demand increases. B) an increase in the quantity of money. C) short-run aggregate supply decreases. D) an increase in the quantity of capital. E) aggregate demand increases and short-run aggregate supply decreases. 19) 20) Everything else remaining the same, which one of the following increases aggregate demand? A) An increase in taxes. B) An increase in transfer payments. C) A decrease in the quantity of money. D) A decrease in government spending. E) A decrease in the price level. 20) 21) If a customer of a bank makes a withdrawal from his chequable deposit account, A) the bankʹs reserve ratio increases. B) the bankʹs reserve ratio remains the same. C) the bankʹs reserve ratio decreases. D) M2 decreases. E) M1 decreases. 21) 8
22) The quantity of real GDP demanded is the sum of real consumption expenditure (C), investment (I), A) government expenditure (G), exports (X), and imports (M). B) and government expenditure (G). C) exports (X), and imports (M). D) and exports (X) minus imports (M). E) government expenditure (G), and exports (X) minus imports (M). 22) Use the figure below to answer the following questions. Figure 26.2.1 23) Refer to Figure 26.2.1. Which graph illustrates what happens when government expenditure increases? A) (a) B) (b) C) (c) D) (d) E) None of the above 23) 9
24) We observe a decrease in the price level and a decrease in real GDP. Which of the following is a possible explanation? A) An increase in the quantity of capital. B) A decrease in the quantity of money. C) An increase in expected future income. D) An increase in factor prices. E) An increase in expected future profits. 24) 25) Aggregate demand A) measures the amount of a nationʹs goods and services that people are willing to buy. B) is a relationship between the quantity of real GDP demanded and the price level. C) increases when the price level falls. D) measures the amount of a nationʹs labor, capital and and technology that people are willing to buy. E) both C and D are correct. 25) 26) The bank rate is the interest rate A) received for holding Government of Canada Treasury Bills. B) banks charge their very best loan customers. C) the Bank of Canada pays on reserves held by banks. D) banks pay on term deposits. E) the Bank of Canada charges when it lends reserves to LVTS-participating banks. 26) 27) Which of the following situations illustrates how fiscal policy can influence aggregate demand? A) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases. B) The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, the aggregate demand curve shifts leftward. C) The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases. D) The exchange rate value of the Canadian dollar rises. As a result, people living near the US-Canada border increase their imports of goods and net exports decrease. E) Both A and C are examples of fiscal policy. 27) 28) If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by securities. Bank reserves and the supply of loanable funds. The quantity of money. A) selling; increase; increases; increases B) selling; decrease; decreases; decreases C) purchasing; decrease; decreases; decreases D) purchasing; decrease; increases; decreases E) purchasing; increase; increases; increases 28) 29) If outlays exceed revenues, the governmentʹs budget balance is, and the government has a budget. A) negative; surplus B) positive; surplus C) negative; deficit D) positive; deficit E) zero; surplus 29) 10
30) Everything else remaining the same, an increase in the expected inflation rate A) shifts the long-run aggregate supply curve rightward. B) shifts the aggregate demand curve rightward. C) creates a movement up along the aggregate demand curve. D) shifts the aggregate demand curve leftward. E) shifts the short-run aggregate supply curve leftward. 30) 11
Answer Key Testname: UNTITLED1 1) A 2) B 3) D 4) A 5) B 6) D 7) C 8) D 9) C 10) C 11) D 12) E 13) A 14) A 15) B 16) C 17) B 18) B 19) D 20) B 21) C 22) E 23) C 24) B 25) B 26) E 27) C 28) B 29) C 30) B 12