Introduction to Macroeconomics Practice Exam 3 Answers

Answer Key 1.d 2.c 3.c 4.a 5.d 6.a 7.a 8.b 9.b 10.d 11.d 12.c 13.c 14.b 15.a 16.a 17.c 18.b 19.a 20.c 21.b 22.d 23.c 24.b 25.b 26.a 27.a 28.b 29.c 30.b 31.d 32.a 33.a 34.a 35.a 36.c 37.d 38.b 39.b 40.a 41.c 42.c 43.c Practice Exam 3 Indicate the answer choice that best completes the statement or answers the question. 1.SupposeforeignersfindU.S.goodsandservicesmoredesirableforsomereasonotherthanachangeintheexchange rate.Whichpoliciescouldbeusedtooffsettheresultingchangeinoutput?  a.anincreaseinthemoneysupplyandanincreaseingovernment purchases.  b.anincreaseinthemoneysupplyandadecreaseingovernmentpurchases.  c.adecreaseinthemoneysupplyandanincreaseingovernmentpurchases.  d.adecreaseinthemoneysupplyandadecreaseingovernmentpurchases. 2.Accordingtotheprincipleofmonetaryneutrality,adecreaseinthemoneysupplywillnotchange  a.nominalGDP.  b.thepricelevel.  c.unemployment.  d.Alloftheaboveare correct. 3.IfM=12,000,P=3,andY=32,000,thenvelocity=  a.1.125.Velocitywillriseifmoneychangeshandsmorefrequently.  b.1.125.Velocitywillriseifmoneychangeshandslessfrequently.  c.8.Velocitywillriseifmoneychangeshandsmorefrequently.  d.8.Velocitywillriseifmoneychangeshandslessfrequently. 4.WhichofthefollowingcantheFeddotochangethemoneysupply?  a.changereservesorchangethereserveratio  b.changereservesbutnotchangethereserveratio  c.changethereserveratiobutnotchangethereserveratio  d.neitherchangereservesnorchangethereserveratio 5.Anopen-marketsale  a.increasesthenumberofdollarsandthenumberofbondsinthehandsofthepublic.  b.increasesthenumberofdollarsinthehandsofthepublicanddecreasesthenumberofbondsinthehandsof thepublic.  c.decreasesthenumberofdollarsandthenumberofbondsinthehandsofthepublic.  d.decreasesthenumberofdollarsinthehandsofthepublicandincreasesthenumberofbondsinthehandsof thepublic. 6.SupposethatmonetaryneutralityandtheFishereffectbothhold.Anincreaseinthemoneysupplygrowthrate increases  a.theinflationrateandthenominalinterestratebythesamenumberofpercentage points.  b.nominalinterestratesbutbylessthanthepercentagepointincreaseintheinflationrate.  c.theinflationratebutnotthenominalinterest.  d.neithertheinflationratenorthenominalinterestrate. 7.Highandunexpectedinflationhasagreatercost  a.forthosewhosavethanforthosewhoborrow. practice Exam 3    b.forthosewhoholdalittlemoneythanforthosewhoholdalotofmoney. c.forthosewhosewagesincreasebyasmuchasinflationthanthosewhoarepaidafixednominalwage. d.forsaversinlowincometaxbracketsthanforsaversinhighincometaxbrackets. 8.JenandAlicaarebothU.S.citizens.JenopensacafeinFrance.AliciabuysequipmentfromacompanyinCanadato useinherfactory.WhoseactionisanexampleofU.S.foreigndirectinvestment?  a.Jen’sandAlica’s  b.Jen’sbutnotAlicia’s  c.Alicia’sbutnotJen’s  d.NeitherAnthony’snorTom’s. 9.WhichofthefollowingisanexampleofU.S.foreignportfolioinvestment?  a.AU.S.legalofficeopensabranchofficeinHolland.  b.Erica,aU.S.resident,buysbondsissuedbytheSwiss government.  c.BothAandBareexamplesofU.S.portfolioinvestment.  d.NeitherAnorBareexamplesofU.S.portfolioinvestment. 10.Whichofthefollowingpolicyactionsshiftstheaggregate-demandcurve?  a.anincreaseinthemoneysupply  b.anincreaseintaxes  c.anincreaseingovernmentspending  d.Alloftheabovearecorrect. 11.Criticsofstabilizationpolicyarguethat  a.thereisalagbetweenthetimepolicyispassedandthetimepolicyhasanimpactonthe economy.  b.theimpactofpolicymaylastlongerthantheproblemitwasdesignedtooffset.  c.policycanbeasourceof,insteadofacurefor,economicfluctuations.  d.Alloftheabovearecorrect. 12.Purchasing-powerparitytheorydoesnotholdatalltimesbecause  a.manygoodsarenoteasilytransported.  b.thesamegoodsproducedindifferentcountriesmaybeimperfectsubstitutesforeach other.  c.Bothaandbarecorrect.  d.pricesaredifferentacrosscountries. Scenario 34-2.Thefollowingfactsapplytoasmall,imaginaryeconomy. •Consumptionspendingis$6,720whenincomeis$8,000. •Consumptionspendingis$7,040whenincomeis$8,500. 13.Refer to Scenario 34-2.Themultiplierforthiseconomyis  a.1.31.  b.6.25. practice Exam 3   c.2.78. d.2.27. 14.Whichofthefollowingpolicieswouldbeadvocatedbysomeonewhowantsthegovernmenttofollowanactive stabilizationpolicywhentheeconomyisexperiencingsevereunemployment?  a.decreasethemoneysupply  b.increasegovernment expenditures  c.increasetaxes  d.Alloftheabovearecorrect. 15.Duringrecessions,automaticstabilizerstendtomakethegovernment'sbudget  a.movetowarddeficit.  b.movetowardsurplus.  c.movetowardbalance.  d.notnecessarilymovethebudgetinanyparticular direction. 16.TodecreasetheinterestratetheFederalReservecould  a.buybonds.Thefallintheinterestratewouldincreaseinvestmentspending.  b.buybonds.Thefallintheinterestratewoulddecreaseinvestment spending.  c.sellbonds.Thefallintheinterestratewouldincreaseinvestmentspending  d.sellbonds.Thefallintheinterestratewoulddecreaseinvestmentspending. 17.Themultipliereffectstatesthatthereareadditionalshiftsinaggregatedemandfromfiscalpolicy,becauseit  a.reducesinvestmentandtherebyincreasesconsumerspending.  b.increasesthemoneysupplyandtherebyreducesinterestrates.  c.increasesincomeandtherebyincreasesconsumerspending.  d.decreasesincomeandtherebyincreasesconsumerspending. 18.Whichofthefollowingisaccurate?  a.Monetarypolicyisneutralinboththeshortrunandthelongrun.  b.Thoughmonetarypolicyisneutralinthelongrun,itmayhaveeffectsonrealvariablesintheshort run.  c.Monetarypolicyhasprofoundeffectsonrealvariablesinboththeshortrunandthelongrun.  d.Monetarypolicyhasprofoundeffectsonrealvariablesinthelongrun,butisneutralintheshortrun. Figure 34-8 practice Exam 3 19.Refer to Figure 34-8.Anincreaseingovernmentpurchaseswill  a. shiftaggregatedemandfromAD1toAD2.  b.shiftaggregatedemandfromAD1toAD3.  c. causemovementfrompointAtopointBalongAD1.  d.havenoeffectonaggregatedemand. 20.Inwhichcasebelowistherealinterestratethehighest?  a.thenominalinterestrate=1%andinflation=3%  b.thenominalinterestrate=6%andinflation=4%  c.thenominalinterestrate=2%andinflation=1%  d.thenominalinterestrate=2%andinflation=1% 21.Theinflationtaxfallsmostlyheavilyon  a.thosewhoholdalotofcurrencyandaccountsforalargeshareofU.S.governmentrevenue.  b.thosewhoholdalotofcurrencybutaccountsforasmallshareofU.S.governmentrevenue.  c.thosewhoholdlittlecurrencyandaccountsforalargeshareofU.S.governmentrevenue.  d.thosewhoholdlittlecurrencybutaccountsforasmallshareofU.S.governmentrevenue. 22.Ifacountryhasatradedeficit  a.ithaspositivenetexportsandpositivenetcapitaloutflow.  b.ithaspositivenetexportsandnegativenetcapitaloutflow.  c.ithasnegativenetexportsandpositivenetcapitaloutflow.  d.ithasnegativenetexportsandnegativenetcapital outflow. 23.IftheMPCis0.8andtherearenocrowding-outoracceleratoreffects,thenaninitialincreaseinaggregatedemandof $120billionwilleventuallyshifttheaggregatedemandcurvetotherightby  a.$216billion.  b.$150billion.  c.$600billion.  d.$480billion. 24.Yourspousecomplainsthather6%raisethisyearwillnotkeepupwiththeincreaseinprices.Inotherwords,sheis unabletobuythesamebasketofgoodswithher6%raise.Therefore,shebelievesthather  a.nominalincomeandrealincomeincreased.  b.nominalincomeincreased,buttheirrealincomedecreased. practice Exam 3   c.nominalincomeandrealincomedecreased. d.nominalincomedecreased,buttheirrealincomeincreased. 25.Accordingtopurchasing-powerparity,ifittook1,100KoreanWontobuyadollarthisyear,butittook1,000tobuyit lastyear,thenthedollarhas  a.appreciated,indicatinginflationwashigherintheU.S.thaninKorea.  b.appreciatedindicatinginflationwaslowerintheU.S.thaninKorea.  c.depreciatedindicatinginflationwashigherintheU.S.thaninKorea.  d.depreciatedindicatinginflationwaslowerintheU.S.thaninKorea. 26.SupposethattherealreturnfromoperatingfactoriesinCanadarisesrelativetotherealrateofreturnintheUnited States.Otherthingsthesame,  a.thiswillincreasesU.S.netcapitaloutflowanddecreaseCanadiannetcapital outflow.  b.thiswilldecreasesU.S.netcapitaloutflowandincreaseCanadiannetcapital outflow.  c.thiswillonlyincreaseU.S.netcapitaloutflow.  d.thiswillonlyincreaseCanadiannetcapitaloutflow. 27.IfaStarbuckstalllattecost$3.20intheUnitedStatesand3eurosintheEuroarea,thenpurchasing-powerparity impliesthenominalexchangerateishowmanyeurosperdollar?  a..938Iftheexchangerateislessthanthis,itcostsmoredollarstobuyatalllatteintheU.S.thanintheEuro area.  b..938Iftheexchangerateislessthanthis,itcostsfewerdollarstobuyatalllatteintheU.S.thenintheEuro area.  c.1.067Iftheexchangerateislessthanthis,itcostsmoredollarstobuyatalllatteintheU.S.thanintheEuro area.  d.1.067Iftheexchangerateislessthanthis,itcostsfewerdollarstobuyatalllatteintheU.S.thanintheEuro area. 28.ThecountryofSylvaniahasaGDPof$900,investmentof$200,governmentpurchasesof$200,andnetcapital outflowof-$100.Whatisconsumption?  a.$700  b.$600  c.$500  d.$300 29.Ifadollarcurrentlypurchases12.5pesosandsomeoneforecaststhatinayearitwillpurchase14pesos,thenthe forecastisgivenin  a.realtermsandimpliesthedollarwillappreciate.  b.realtermsandimpliesthedollarwilldepreciate.  c.nominaltermsandimpliesthedollarwill appreciate.  d.nominaltermsandimpliesthedollarwill depreciate. 30.Wheninflationrises,peopletendtogotothebank practice Exam 3     a.moreoften,givingrisetomenucosts. b.moreoften,givingrisetoshoeleathercosts. c.lessoften,givingrisetoredistributioncosts. d.lessoften,therebylesseningtheseverityoftheinflation tax. 31.Accordingtoliquiditypreferencetheory,theslopeofthemoneydemandcurveisexplainedasfollows:  a.InterestratesriseastheFedreducesthequantityofmoney demanded.  b.InterestratesfallastheFedreducesthesupplyofmoney.  c.Peoplewillwanttoholdlessmoneyasthecostofholdingitfalls.  d.Peoplewillwanttoholdmoremoneyasthecostofholdingitfalls. 32.AnItaliancompanyexchangeseurosfordollarsfromU.S.residentsandthenusesthedollarstobuyU.S.productsto sellinitsstoresinRome.U.S.residentswhoexchangedtheirdollarsforeurosusetheeurostobuybondsissuedby Frenchcorporations.Atthispoint  a.bothU.S.netexportsandU.S.netcapitaloutflowshaverisen.  b.bothU.S.netexportsandU.S.netcapitaloutflowhavefallen.  c.U.S.netexportshaverisenandU.S.netcapitaloutflowhavefallen.  d.U.S.netexportshavefallenandU.S.netcapitaloutflowhaverisen. 33.Thevalueofmoneyfalls.ThismightbebecausetheFederalReserve  a.boughtbonds,whichincreasedthemoneysupply.  b.boughtbonds,whichdecreasedthemoneysupply.  c.soldbonds,whichincreasedthemoneysupply.  d.soldbonds,whichdecreasedthemoneysupply. 34.IfFrancehadpositivenetexportslastyear,thenit  a.soldmoreabroadthanitpurchasedabroadandhadatrade surplus.  b.soldmoreabroadthanitpurchasedabroadandhadatradedeficit.  c.boughtmoreabroadthanitsoldabroadandhadatradesurplus.  d.boughtmoreabroadthanitsoldabroadandhadatradedeficit. 35.IftheinterestrateisabovetheFed'starget,theFedshould  a.buybondstoincreasebankreserves.  b.buybondstodecreasebankreserves.  c.sellbondstoincreasebankreserves.  d.sellbondstodecreasebankreserves. 36.Ifwe'reonlylookingattheExpenditureEffect,thenaataxcutshiftsaggregatedemand  a.bymorethantheamountofthetaxcut.  b.bythesameamountasthetaxcut.  c.bylessthanthetaxcut.  d.Noneoftheaboveisnecessarily practice Exam 3 correct. 37.Ifacountryhasatradedeficitthen  a.S>IandY>C+I+G.  b.S>IandY<C+I+G.  c.S<IandY>C+I+G.  d.S<IandY<C+I+G. 38.Inthelongrun,fiscalpolicyinfluences  a.saving,investment,andgrowth;intheshortrun,fiscalpolicyprimarilyinfluencestechnologyandthe productionfunction.  b.saving,investment,andgrowth;intheshortrun,fiscalpolicyprimarilyinfluencestheaggregatedemandfor goodsandservices.  c.technologyandtheproductionfunction;intheshortrun,fiscalpolicyprimarilyinfluencessaving,investment, andgrowth.  d.theaggregatedemandforgoodsandservices;intheshortrun,fiscalpolicyprimarilyinfluencestechnology andtheproductionfunction. 39.SupposethatmonetaryneutralityandtheFishereffectbothhold.Anincreaseinthemoneysupplygrowthrate increases  a.theinflationrateandgrowthofrealGDP.  b.theinflationratebutnotthegrowthrateofrealGDP.  c.thegrowthrateofrealGDP,butnottheinflationrate.  d.neithertheinflationratenorthegrowthrateofrealGDP. 40.ThemoneysupplyincreaseswhentheFed  a.lowersthediscountrate.Theincreasewillbelargerthesmallerthereserveratio is.  b.lowersthediscountrate.Theincreasewillbelargerthelargerthereserveratiois.  c.raisesthediscountrate.Theincreasewillbelargerthesmallerthereserveratiois.  d.raisesthediscountrate.Theincreasewillbelargerthelargerthereserveratiois. 41.Theideathatnominalvariablesareheavilyinfluencedbythequantityofmoneyandthatmoneyislargelyirrelevant forunderstandingthedeterminantsofrealvariablesiscalledthe  a.velocityconcept.  b.Fishereffect.  c.classicaldichotomy.  d.Mankiweffect. 42.Inordertomaintainstableprices,acentralbankmust  a.maintainlowinterestrates.  b.keepunemploymentlow.  c.tightlycontrolthemoneysupply.  d.sellindexedbonds. 43.Ifvelocity=5,thepricelevel=2,andtherealvalueofoutputis2,500,thenthequantityofmoneyis     a.$250. b.$25,000. c.$1,000. d.$6,250.