IF OUTPUT IS AT POTENTIAL OUTPUT, WHICH OF THE FOLLOWING POLICIES IS MOST APPROPRIATE ACCORDING TO THE AS/AD MODEL?

15 Jul IF OUTPUT IS AT POTENTIAL OUTPUT, WHICH OF THE FOLLOWING POLICIES IS MOST APPROPRIATE ACCORDING TO THE AS/AD MODEL?

1) The largest source of household income in the U.S. isobtained from

A. stock dividends

B. wages and salaries

C. interest earnings

D. rental income

2) The market where business sell goods and services to householdsand the government is called the

A. goods market

B. factor market

C. capital market

D. money market

3) Real gross domestic product is best defined as

A. the market value of intermediate goods and services produced inan economy, including exports

B. all goods and services produced in an economy, stated in theprices of a given year and multiplied by quantity

C. the market value of all final goods and services produced in aneconomy, stated in the prices of a given year

D. the market value of goods and services produced in an economy,stated in current-year prices

4) Underemployment includes people

A. who work “off-the-books” to avoid tax liabilities

B. who are working part time, or not using all their skills at afull-time job

C. who are tired of looking for a job, so they quit looking, butstill want one

D. whose skills are not in demand anymore

5) The Bureau of Economic Analysis is responsible for which of thefollowing?

A. Setting interest rates

B. Managing the money supply

C. Calculating U.S. gross domestic product]

D. Paying unemployment benefits

6) The Federal Reserve provides which of the following data?

A. Federal funds rate

B. Stock price of GE

C. Bond yields of corporations

D. Debt to GDP of Ireland

7) Consider if the government instituted a 10 percent income taxsurcharge. In terms of the AS/AD model, this change should have

A. shifted the AD curve to the left

B. shifted the AD curve to the right

C. made the AD curve flatter

D. made the AD curve steeper

8) If the depreciation of a country’s currency increases itsaggregate expenditures by 20, the AD curve will

A. shift right by more than 20

B. shift right by less than 20

C. shift right by exactly 20

D. not shift at all

9) Aggregate demand management policies are designed most directlyto

A. minimize unemployment

B. minimize inflation

C. control the aggregate level of spending in the economy

D. prevent budget deficits or surpluses

10) Suppose that consumer spending is expected to decrease in thenear future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?

A. An increase in government spending

B. An increase in taxes

C. A reduction in government spending

D. No change in taxes or government spending

11) According to Keynes, market economies

A. never experience significant declines in aggregate demand

B. quickly recover after they experience a significant decline inaggregate demand

C. may recover slowly after they experience a significant declinein aggregate demand

D. are constantly experiencing significant declines in aggregatedemand

12) The laissez-faire policy prescription to eliminate unemploymentwas to

A. eliminate labor unions and government policies that hold realwages too high

B. strengthen unions and government regulations protecting unionsand workers

C. increase real wages so that people are encouraged to work

D. have government guarantee jobs for everyone

ECO 372 ECO372 Final Exam

13) In the AS/AD model, an expansionary monetary policy has thegreatest effect on the price level when it

A. increases both nominal and real income

B. increases real income but not nominal income

C. increases nominal income but not real income

D. doesn’t increase real or nominal income

14) The Federal funds rate

A. is always slightly higher than the discount rate

B. can never be close to zero

C. may sometimes have to be targeted at zero

D. is an intermediate target

15) What tool of monetary policy will the Federal Reserve use toincrease the federal funds rate from 1% to 1.25%?

A. Open-market operations

B. The discount rate

C. A change in reserve requirements

D. Margin requirements

16) If the Federal Reserve increases the required reserves,financial institutions will likely lend out

A. more than before, increasing the money supply

B. less than before, decreasing the money supply

C. more than before, decreasing the money supply

D. less than before, increasing the money supply

17) Suppose the money multiplier in the U.S. is 3. Suppose furtherthat if the Federal Reserve changes the discount rate by 1percentage point, banks change their reserves by 300. To increasethe money supply by 2700 the Federal Reserve should

A. reduce the discount rate by 3 percentage points

B. reduce the discount rate by 10 percentage points

C. raise the discount rate by 3 percentage points

D. raise the discount rate by 10 percentage points

18) If the Federal Reserve reduced its reserve requirement from 6.5percent to 5 percent. This policy would most likely

A. increase both the money multiplier and the money supply

B. increase the money multiplier but decrease the money supply

C. decrease the money multiplier but increase the money supply

D. decrease both the money multiplier and the money supply

19) A country can have a trade deficit as long as it can

A. purchase foreign assets

B. make loans to other countries

C. borrow from or sell assets to foreigners

D. produce more than it consumes.

20) A weaker dollar

A. raises inflation and contracts the economy.

B. reduces inflation and contracts the economy

C. raises inflation and expands the economy

D. reduces inflation and expands the economy

21) In the short run, a trade deficit allows more consumption, butin the long run, a trade deficit is a problem because

A. the country eventually will consume more and produce less

B. the country eventually will sell all its financial assets toforeigners

C. the domestic currency will appreciate

D. the country eventually has to produce more than it consumes inorder to pay foreigners their profits

22) Considering an economy with a current trade deficit andconsidering only the direct effect on income, an expansionarymonetary policy tends to

A. decrease the exchange rate and increase the trade deficit

B. increase the exchange rate and increase the trade deficit

C. decrease the exchange rate and decrease the trade deficit

D. increase the exchange rate and decrease the trade deficit

23) The balance of trade measures the

A. difference between the value of imports and exports

B. share of U.S. imports coming from various regions of theworld

C. share of U.S. exports going to various regions of the world

D. exchange rate needed to make imports equal exports

24) When a country runs a trade deficit, it does so by:

A. borrowing from foreign countries or selling assets to them.

B. borrowing from foreign countries or buying assets from them.

C. lending to foreign countries or selling assets to them.

D. lending to foreign countries or buying assets from them.

25) Expansionary fiscal policy tends to

A. raise U.S. income, increase U.S. imports, and increase the tradedeficit

B. raise U.S. income, increase U.S. imports, and lower the tradedeficit

C. lower U.S. income, reduce U.S. imports, and increase the tradedeficit

D. lower U.S. income, reduce U.S. imports, and lower the tradedeficit

26) In considering the net effect of expansionary fiscal policy onthe trade deficit, the

A. income effect offsets the price effect

B. price effect offsets the income effect

C. income and price effects work in the same direction, so thetrade deficit is decreased

D. income and price effects work in the same direction, so thetrade deficit is increased

27) If U.S. interest rates fall relative to Japanese interest ratesand Japanese inflation falls relative to U.S. inflation, thenthe

A. dollar will lose value in terms of yen

B. dollar will gain value in terms of yen

C. dollar’s value will not change in terms of yen

D. change in the dollar’s value cannot be determined

28) Expansionary monetary policy tends to

A. lower the U.S. interest rate and increase the U.S. exchangerate

B. lower the U.S. interest rate and decrease the U.S. exchangerate

C. increase the U.S. interest rate and decrease the U.S. exchangerate

D. increase the U.S. interest rate and increase the U.S. exchangerate

29) The U.S. has limits on Chinese textile imports. Such limits arean example of

A. a tariff

B. a quota

C. a regulatory trade restriction

D. an embargo

30) Duties imposed by the U.S. government on imported Chinesefrozen and canned shrimp are an example of

A. tariffs

B. quotas

C. voluntary restrictions

D. regulatory trade restrictions