Macroeconomics (MUST STUDY)

Question 1

If the government created a new tax credit to encourage businesses to build more factories

a. interest rates could either increase or decrease.
b. the demand for loanable funds would decrease.
c. the supply of loanable funds would increase.
d. the demand for loanable funds would increase.
e. interest rates would fall due to a decrease in total amount borrowed.

Answer 1

d. the demand for loanable funds would increase.

Question 2

which of the following is the incorrect statement:

a. during a period of inflation, prices are always rising
b. when inflation is decreasing, prices are always falling
c. if the inflation is constant, prices are neither rising or falling
d. a and b are incorrect
e. b and c are incorrect

Answer 2

a. during a period of inflation, prices are always rising

Question 3

According to the multiplier effect, a dollar increase in government spending will lead to

A. A multiple dollar increase in the money supply
B. An increase in aggregate demand
C. A decrease in aggregate demand
D A multiple dollar increase in the aggregate demand
E. None of the above

Answer 3

B. An increase in aggregate demand

Question 4

If real interest rates are too low:

A. There will be excess demand in the loan able fund market (if rates are too law).
B. Nominal interest rates will have to rise
C. There will be excess supply in loan able funds market
D. Inflation must be increase
E. The GDP deflator has not been append yet

Answer 4

C. There will be excess supply in loan able funds market

Question 5

The substitution bias means that:

A. Consumer substitute towards good that have become relatively more expensive.
B. Consumers substitute towards goods that have become relatively less expense.
C. The CPI understates the increase in the cost of living each years.
D. The CPI compensates for equal changes and accurately reflect the cost of living.
E. None of the above.

Answer 5

B. Consumers substitute towards goods that have become relatively less expense.

Question 6

If you take nation’s total income and subtract out private consumption, government consumption you will find.

A. GDP
B. National Saving     
C. Net national product
D. Net exports
E. National consumption surplus.

Answer 6

B. National Saving

Question 7

The decrease in Money Supply, the Fed would?

A. Buy government’s bonds
B. Increase the discount rate
C. Decrease the reserve requirement
D. All of the above
E. None of the above

Answer 7

B. Increase the discount rate

Question 8

The main problem with active fiscal policy is that?

A. Changes in government’s spending have no effect on Aggregate Demand in short-run.
B. The multiplier effect cancels out any positive effect of fiscal policy
C. Automatic statistic countract the effect of fiscal policy.
D. It happens without any involvement by congress
E. It is difficult to time fiscal changes correctly.

(On the EXAM)

Answer 8

E. It is difficult to time fiscal changes correctly.

Question 9

What is an automatic stabilizer?

A. Tool of monitory policy that enters under control of the Fed Chairman.
B. Tools of Fiscal that requires specific legislation to be passed by congress.
C. Tools of fiscal policy that responds to change in the economy without any action by politician.
D. Tools of monitory policy that is not control by Fed
E. Tools of fiscal policy that is immune to crowding out

Answer 9

C. Tools of fiscal policy that responds to change in the economy without any action by politician.

Question 10

Liquidity performance an increase in the rate of growth of the money supply cause?

A. Interest rates will fall
B. Interest rates will rise
C. Nominal wages will fall
D. Nominal GDP will stay the same
E. Real GDP will fall

Answer 10

A. Interest rates will fall

Question 11

MV = PY

Answer 11

Money, Velocity = Price, GDP

Question 12

According to loan able funds framework, if business decides to eliminate or postpone expansion plans reducing their need to borrow?

A. There will be excess demand in the loan able fund market
B Interest rates will increase
C. Interest rates will decrease
D. Interest rates will not change
E. Interest rates either can rise or fall

Answer 12

C. Interest rates will decrease

Question 13

If you take GDP and subtract the value of depreciation of the economy’s capital stock, you find the:

A. Net domestic product.
B. Net national product. 
C. GNP
D. GDP Deflator
E. Nominal GDP

Answer 13

A. Net domestic product.

Question 14

The aggregate supply-aggregate demand model predicts that the short-run effect of an unexpected decrease in taxes is:

a. A decrease in the price level and an increase in real output.
b. An increase in both the price level and real output.
c. An increase in the price level and a decrease in real output.
d. A decrease in both the price level and real output.
e. No effect on the price level and a decrease in real output.

(On the EXAM)

Answer 14

d. A decrease in both the price level and real output.

Question 15

Net exports measure an imbalance between a country’s

a. exports and its imports.
b. sale of domestic assets abroad and buying of foreign assets.
c. income and expenditure.
d. savings and consumption.
e. all of the above.

Answer 15

a. exports and its imports.

Question 16

All of the following would cause a leftward shift in the short-run aggregate-supply curve except

a. a substantial drop in employment caused by a large hike in the legal minimum wage.
b. a natural disaster that leads to a significant decline in the the economy’s physical capital stock.
c. the removal of government regulations, leading to a large increase in oil production.
d. the imposition of foreign-trade barriers that substantially reduce the level of mutually beneficial trade.
e. a decrease in the level of immigration.

Answer 16

c. the removal of government regulations, leading to a large increase in oil production.

Question 17

Countries that devote a large share of GDP to investment, such as Singapore and S. Korea, tend to have

a. high growth rates.
b. stable growth rates.
c. low growth rates.
d. highly cyclical growth rates.
e. there is no relationship between investment and growth.

Answer 17

c. low growth rates.

Question 18

Which of following helps explain the negative slope of the aggregate demand curve?

a. A lower price level increases real wealth, which encourages spending on consumption.
b. A lower price level reduces the interest rate, which encourages spending on investment.
c. A lower price level causes the real exchange rate to depreciate, which encourages spending on net exports.
d. All of the above.
e. None of the above.

Answer 18

c. A lower price level causes the real exchange rate to depreciate, which encourages spending on net exports.

Question 19

Congress passes a tax cut because economists predict a coming recession. This is an example of what?

a. Automatic stabilization.
b. Active fiscal policy.
c. Discretionary monetary policy.
d. Non-discretionary monetary policy.
e. none of the above.

Answer 19

b. Active fiscal policy.

Question 20

A merchandise trade deficit:

a. occurs when net exports are positive.
b. occurs when imports are greater than exports.
c. is usually accompanied by decreases in foreign investment in the U.S.
d. occurs when domestic investment is less than domestic saving.
e. none of the above.

Answer 20

b. occurs when imports are greater than exports.

Question 21

A government can increase long-run economic growth by:

a. discouraging saving.
b. encouraging education and training of labor.
c. increasing the taxation of capital.
d. imposing restrictions on international trade.
e. all of the above.

(On the EXAM)

Answer 21

b. encouraging education and training of labor.

Question 22

Which of the following institutions is not identified by economists as a major determinant of long run-growth?

a. A legal system that efficiently enforces property rights.
b. A trading system that allows people to buy and sell products with whomever they please.
c. Government programs that reward productive behavior by individuals.
d. Democratic government.
e. All of the above are major determinants of long-run growth.

Answer 22

e. All of the above are major determinants of long-run growth.

Question 23

If real interest rates are too high:

a. there will be excess demand in the loanable funds market.
b. nominal interest rates will have to rise.
c. there will be excess supply in the loanable funds market.
d. inflation must be increasing.
e. the GDP deflator hasn’t been applied yet.

Answer 23

c. there will be excess supply in the loanable funds market.

Question 24

Reserve requirements are regulations concerning:

a. the amount of deposits banks are allowed to accept.
b. the amount of reserves banks must hold against deposits.
c. the total amount of loans banks are allowed to make.
d. the interest rate at which banks can borrow from the Fed.
e. the number of open market transactions the Fed can perform.

Answer 24

b. the amount of reserves banks must hold against deposits.

Question 25

Economists sometimes refer to an “inflation tax”. Which of the following statements best describes what they have in mind?

a. Many tax laws cause great inefficiency in the presence of inflation.
b. Many tax policies cause substantial redistribution of income during inflationary periods.
c. When the government prints money to pay for its expenses, inflation occurs, and this causes a reduction in wealth for everybody who holds on to money.
d. When inflation occurs, nominal interest rates rise, which causes an enormous transfer of wealth between borrowers and lenders.
e. None of the above.

Answer 25

a. Many tax laws cause great inefficiency in the presence of inflation.

Question 26

Which of the following statements most accurately describes the “Fisher Effect”?

a. The Fisher Effect states that when the rate at which the money supply grows is increased, nominal interest rates fall.
b. The Fisher Effect states that when the rate at which the money supply grows is increased, real interest rates fall.
c. The Fisher Effect states that when the rate at which the money supply grows is increased, nominal interest rates rise.
d. The Fisher Effect states that when the rate at which the money supply grows is increased real interest rates rise.
e. None of the above statements are correct.

Answer 26

c. The Fisher Effect states that when the rate at which the money supply grows is increased, nominal interest rates rise.

Question 27

The aggregate demand curve shows:

a. the quantity of goods and services that households, firms, and the government want to buy at each price level.
b. the quantity of goods and services that households, firms, and the government want to buy at each interest rate.
c. the quantity of goods and services that households (not firms) want to buy at each price level.
d. the quantity of goods and services that firms (not households) want to buy at each interest rate.
e. none of the above.

Answer 27

a. the quantity of goods and services that households, firms, and the government want to buy at each price level.

Question 28

If real interest rates are too high:

a. there will be excess demand in the loanable funds market.
b. nominal interest rates will have to rise.
c. there will be excess supply in the loanable funds market.
d. inflation must be increasing.
e. the GDP deflator hasn’t been applied yet.

Answer 28

c. there will be excess supply in the loanable funds market.

Question 29

Most economists argue that an effective monetary policy would:

a. create money faster during recessions and more slowly during booms.
b. create money faster all the time.
c. create money more slowly all the time.
d. create money faster during booms and more slowly during recessions.
e. create money slowly during booms and not at all during recessions.

Answer 29

a. create money faster during recessions and more slowly during booms.

Question 30

The GDP deflator is:

a. (Real GDP x 100)/(Nominal GDP).
b. (Nominal GDP x 100)/(Real GDP).
c. (Nominal GDP)/(Real GDP).
d. (Real GDP)/(Nominal GDP).
e. none of the above.

Answer 30

b. (Nominal GDP x 100)/(Real GDP).

Question 31

An open market purchase is where the Fed:

a. purchases government bonds from the public, thereby decreasing the money supply.
b purchases government bonds from the public, thereby increasing the money supply.
c. increases the money supply by selling government bonds to the public.
d. decreases the money supply by selling government bonds to the public.
e. none of the above.

Answer 31

b. purchases government bonds from the public, thereby increasing the money supply.

Question 32

Which of the following is not an example of monetary policy?

a. Purchasing of government bonds in an open market operation.
b. A change in required reserve regulations.
c. A change in the discount rate.
d. An increase in the earned income tax credit.
e. Selling of government bonds in an open market operation

Answer 32

d. An increase in the earned income tax credit.

Question 33

According to the theory of “money neutrality” which of the following statements is likely to be true?

a. When the money supply is increased, real wage rates will rise.
b. When the money supply is increased, real interest rates will fall.
c. When the money supply is increased, real GDP will increase.
d. When the money supply is increased, real wage rates will fall.
e. When the money supply is increased, nominal wage rates will rise.

Answer 33

e. When the money supply is increased, nominal wage rates will rise.

Question 34

A country will grow faster if

a. investment in human capital increases.
b. saving decreases.
c. the government raises taxes on savings.
d. investment in physical capital decreases.
e. all of the above.

Answer 34

a. investment in human capital increases.

Question 35

The aggregate supply-aggregate demand model suggests that the government can stabilize an economy that experiences a sudden and unexpected decline in consumer confidence and aggregate demand by:

a. increasing the money supply.
b. decreasing government spending to balance the budget.
c. raising taxes.
d. all of the above.
e. none of the above.

Answer 35

a. increasing the money supply.

Question 36

If nominal wages adjust slowly to changing economic conditions, then a decrease in the price level will cause the real wage rate to rise and employment and real output to fall. This description of the impact of a decrease in the price level on real output is used to explain:

a. a shift in the aggregate-demand curve.
b. the negative slope of the aggregate demand curve.
c. a shift in the short-run aggregate-supply curve.
d. the vertical shape of the long-run supply curve.
e. the positive slope of the short-run aggregate-supply curve.

Answer 36

e. the positive slope of the short-run aggregate-supply curve.

Question 37

If the dollar value of a country’s exports is greater than the value of its imports:

a. net foreign investment is generally positive.
b. net foreign investment is unaffected.
c. net foreign investment is generally negative.
d. investment flows into the country.
e. both a and d.

Answer 37

a. net foreign investment is generally positive.