Econ Assignment 6

Econ Assignment 6 Please write down your name and student ID. Name: Student ID: MCQ (37 points) 1. If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A) A medium of exchange. B) A store of value. C) A unit of account. D) An economic investment. 2. The transactions demand for money will shift to the: A) Right when the interest rate increases. B) Left when the interest rate decreases. C) Right when nominal GDP increases. D) Right when nominal GDP decreases. 3. Which of the following best describes the expansionary monetary policy? A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. 4. If the Federal Reserve (central bank) authorities were attempting to reduce demand-pull inflation, the proper policies would be to: A) Sell government securities, raise reserve requirements, and raise the discount rate. B) Buy government securities, raise reserve requirements, and raise the discount rate. C) Sell government securities, lower reserve requirements, and lower the discount rate. D) Sell government securities, raise reserve requirements, and lower the discount rate. 5. Other things equal, an excessive increase in the money supply will: A) Increase the purchasing power of each dollar. B) Decrease the purchasing power of each dollar. C) Have no impact on the purchasing power of the dollar. D) Reduce the price level. 1 6. The asset demand for money is most closely related to money functioning as a: A) Unit of account. B) Medium of exchange. C) Store of value. D) Measure of value. 7. The discount rate is the rate of interest at which: A) The Central Bank lend to commercial banks. B) Savings and loan associations lend to some builders. C) The Central Bank lend to large corporations. D) Commercial banks lend to large corporations. Refer to the below diagrams to answer question 8 8. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 4 percent and the Central Bank desires to reduce or eliminate demandpull inflation, it should: A) Increase the interest rate from 4 percent to 6 percent. B) Decrease the interest rate from 4 to 2 percent. C) Increase investment spending by $20 billion. D) Maintain the interest rate at 4 percent. 9. All else equal, when the central bank engage in a contractionary monetary policy, the prices of government bonds usually: A) Fall. B) Rise. C) Remain constant. D) Move in the same direction as the bonds' interest rate yield. 10. Assume that the price level is flexible both upward and downward and that the central bank's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the central bank: A) Will have to increase interest rates to keep the price level from falling. B) Will have to reduce the money supply to keep the price level from rising. C) Will have to increase the money supply to keep the price level from falling. D) Can keep the price level stable without altering the money supply or interest rate. 2 11. The current Governor of the Central Bank of Egypt who majored in Economics and graduated from the American University in Cairo is: A) Hesham Ramez. B) Dr. Farook Al Okda. C) Alan Greenspan. D) Tarek Amer. 12. Checkable deposits are classified as money because: A) They can be readily used in purchasing goods and paying debts. B) Banks hold currency equal to the value of their checkable deposits. C) They are ultimately the obligations of the Treasury. D) They earn interest income for the depositor. 13. Currency in circulation is part of: A) M1 only. B) M2 not including M1. C) Neither M1 nor M2. D) Both M1 and M2. 14. When the money market is in equilibrium: A) The quantity of money demanded equals the quantity of money supplied. B) The interest rate is increasing. C) Bond prices are falling. D) The interest rate is declining. 15. t is costly to hold money because: A) Deflation may reduce its purchasing power. B) In doing so one sacrifices interest income. C) Bond prices are highly variable. D) The velocity of money may decline. Use the following to answer questions 16-17: Money market mutual fund balances Currency and coins in circulation Saving deposits Large ($1000, 000 or more) time deposits Small (less than $ 10, 000) time deposits Checkable deposits $ 220 $ 60 $ 50 $ 180 $ 80 $ 70 16. Refer to the above information. Money supply M1 for this economy is: A) $60. B) $70. C) $130. D) $140. 3 17. Refer to the above information. Money supply M3 for this economy is: A) $480. B) $130. C) $490. D) $660. 18. Checkable deposits are: A) Included in M1 but not in M2. B) Considered to be a near-money. C) Included in M1 and in M2. D) Also called time deposits. Rate of interest (percent) Use the following to answer question 19: S 10 8 6 4 2 D1 100 200 300 400 Amount of money demanded (billions of dollars) 19. Refer to the above money market diagrams. The asset demand for money is shown by: A) D1. B) D2. C) D3. D) S. 20. When economists say that money serves as a unit of account, they mean that it is: A) Away to keep wealth in a readily spendable form for future use. B) A means of payment. C) A monetary unit for measuring and comparing the relative values of goods. D) Declared as legal tender by the government. 21. The amount that a commercial bank can lend is determined by its: A) Required reserves. B) Excess reserves. C) Outstanding loans. D) Outstanding checkable deposits. 22. The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: A) The MPS. B) Its actual reserves. C) Its excess reserves. 4 D) The reserve ratio. 23. If the amount of money demanded exceeds the amount supplied, the: A) Demand-for-money curve will shift to the left. B) Money supply curve will shift to the right. C) Interest rate will rise. D) Interest rate will fall. Use the following to answer question 24: 24. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If aggregate demand is AD3 and the monetary authorities desire to reduce it to AD 2, they should: A) Increase the interest rate from 3 percent to 9 percent. B) Increase the money supply from $100 to $120. C) Decrease the money supply from $120 to $100. D) Decrease the interest rate from 3 percent to 9 percent. Use the following to answer question 25: (1) Interest 4% 5 6 7 8 (2) Investment $100 90 80 70 60 (3) Investment $80 70 60 50 40 25. Refer to the above table. Suppose the Central Bank reduces the interest rate from 6 to 5 percent at a time when the investment demand declines from that shown by columns (1) and (2) to that shown by columns (1) and (3). As a result of these two occurrences, investment will: A) Increase by $10 billion. B) Decrease by $10 billion. C) Increase by $20 billion. D) Decrease by $20 billion. 5 26. Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures? A) A tax increase and an increase in the money supply B) A tax reduction and an increase in the money supply C) A reduction in government expenditures and a decline in the money supply D) A tax increase and an increase in the interest rate 27. The traditional Phillips Curve suggests a tradeoff between: A) Price level stability and income equality. B) The level of unemployment and price level stability. C) Unemployment and income equality. D) Economic growth and full employment. Use the following to answer questions 28-29: 28. (Advanced analysis) Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In the short run, demand-pull inflation could best be shown as: A) A move from b to c on AS2. B) A move from b to c to d. C) A change of aggregate supply from AS2 to AS3. D) A move from b to d. 29. (Advanced analysis) Refer to the above diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full-employment level of output Qf. In the long run, an increase in the price level from P2 to P3 will: A) Increase real output from Qf to Q2. B) Change aggregate supply from AS2 to AS1. C) Decrease real output from Q2 to Q1. D) Move the economy from b to d. 6 Use the following to answer questions 30-31: 30. Refer to the above diagram for a specific economy. Which of the following best describes a decision by policymakers that moves this economy from point b to point a? A) Policymakers have instituted an easy money policy and/or a budgetary deficit, thereby accepting more unemployment to reduce the rate of inflation. B) Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting a higher rate of inflation to reduce unemployment. C) Policymakers have instituted an easy money and/or a budgetary deficit, thereby accepting a higher rate of inflation to reduce unemployment. D) Policymakers have instituted a tight money policy and/or a budgetary surplus, thereby accepting more unemployment to reduce the rate of inflation. 31. Refer to the above diagram for a specific economy. A reduction in structural unemployment or bottleneck problems in labor markets will: A) Shift this curve to the right. B) Shift this curve to the left. C) Move this economy southeast along the curve. D) Move this economy northwest along the curve. 32. The short-run aggregate supply curve is up-sloping because: A) Of the interest rate effect. B) Higher price levels create incentives to expand output when resource prices remain constant. C) Of the net export effect. D) Higher price levels create an expectation among producers of still higher price levels. 33. Which of the following is correct? A) Total output = labor productivity/worker-hours B) Labor productivity = worker-hours/total output C) Total output = worker-hours × labor productivity D) Worker-hours = labor productivity × total output 34. Economic growth can be portrayed as a: A) Outward shift of the production possibilities curve. B) Inward shift of the production possibilities curve. C) Movement from a point on to a point inside a production possibilities curve. 7 D) Movement from one point to another point on a fixed production possibilities curve. Use the following to answer question 35: 35. Refer to the above diagram. The long-run aggregate supply curve is: A) A. B) B. C) C. D) D. 36. An outward shift of an nation's production possibilities curve is equivalent to a: A) Rightward shift of the nation's aggregate demand curve. B) Downward shift of the nation's aggregate expenditure curve. C) Rightward shift of the nation's long-run aggregate supply curve. D) Rightward shift of the nation's investment demand curve. Use the following to answer question 37: Y Price level Capital goods X C A 0 0 B D Q1 Q2 Consumer goods Real GDP 37. Refer to the above graphs. An increase in the economy's technological progress would shift curve: A) AB to CD and curve Y to X. B) CD to AB and curve X to Y. C) X to Y while leaving curve AB in place. D) AB to CD and curve X to Y. 8