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Macroeconomics monetary, fiscal and political policies

____ 1. Which of the following would cause both the equilibrium price and equilibrium quantity of cookies to decrease?

a. a rise in the price of milk (a complement)
b. a rise in consumer incomes
c. a rise in the price of cookie dough
d. a drop in the price of cookie dough
e. a rise in the price of crackers (a substitute)

____ 6. Barter is more feasible in primitive societies because

a. there is no inflation
b. there are many goods available for trade, so people can always find the goods that they want
c. specialization is limited and thus there are few goods available for trade
d. specialization is limited and thus there are many goods available for trade
e. people in primitive societies have limited wants

____ 8. To minimize the effect of short-term political pressure on the Fed's Board of Governors, the governors are all appointed to their terms

a. in different years, and their terms are long
b. in different years, and their terms are short
c. in the same year, and their terms are long
d. in the same year, and their terms are short
e. in the same year, and their terms are shorter than that of the chairman of the Federal Reserve Board

____ 12. If the required reserve ratio is 10 percent and a bank receives a new deposit for $100,000, then the

a. bank must keep $5,000 in excess reserves
b. bank's required reserves increase by $45,000
c. bank's liabilities increase by $100,000
d. bank can increase its loans by up to $50,000
e. bank can increase its loans by up to $400,000

____ 13. The liquidity of an asset indicates

a. its buying power
b. the ease with which it can be converted into the medium of exchange without a significant loss of value
c. the ease with which it can be converted into another asset
d. how likely people are to convert it into the medium of exchange without a significant loss of value
e. how easy it is to buy with a check

____ 20. The demand for money is based primarily on money's role as a(n)

a. store of wealth
b. medium of exchange
c. standard of value
d. interest-bearing asset
e. non-interest-bearing asset

____ 21. People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

a. more; decreases; buy
b. more; increases; sell
c. more; decreases; sell
d. less; increases; sell
e. less; decreases; buy

____ 22. The relationship between the interest rate and the quantity of money demanded

a. is a direct relationship
b. is an inverse relationship
c. is nonexistent
d. is a direct relationship when the interest rate is low and an inverse relationship when the interest rate is high
e. is an inverse relationship when the interest rate is low and a direct relationship when the interest rate is high

____ 23. If the price level rises, then the

a. money supply increases
b. money supply decreases
c. quantity of money supplied increases
d. quantity of money supplied decreases
e. demand for money increases

____ 24. When there is a decrease in the supply of money, which one of the following is most likely to happen?

a. demand for money will increase
b. planned investment spending will increase
c. interest rates will rise
d. aggregate expenditures will increase
e. demand for money will decrease

____ 27. Which monetary policy would be appropriate to close a contractionary gap?

a. a tax cut
b. a decrease in government purchases
c. an increase in reserve requirements
d. the Fed's purchase of U.S. government securities
e. the Fed's raising the discount rate

____ 28. If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the largest short-run increase in the price level.

a. that is vertical
b. with a steep slope
c. that coincides with the 45-degree line
d. that is relatively flat
e. that is horizontal

____ 31. If a contractionary gap is cured by pushing AD curve to the right,

a. both c and e are correct
b. both d and e are correct
c. real wages fall because prices rise
d. prices rise causing real wages to increase
e. money wages decrease as prices decrease

____ 32. If the economy is at the natural rate of unemployment but those who favor an active approach to policy think the natural rate is lower, they will try to shift

a. the short-run aggregate supply curve rightward
b. the aggregate demand curve rightward
c. the short-run aggregate supply curve leftward
d. the aggregate demand curve leftward
e. both the aggregate demand and the short-run aggregate supply curves leftward

____ 33. If the economy is at the natural rate of unemployment but those who favor an active approach to policy think the natural rate is lower, as a result of their policies the level of output will

a. be below potential output in the long run
b. be above potential output in the long run
c. rise in the short run, then fall to potential output in the long run
d. fall in the short run, then rise to potential output in the long run
e. remain the same with a lower price level

____ 35. An important implication of the natural rate hypothesis is that regardless of concerns about __________, the government policy that results in __________ is generally the optimal long-run policy.

a. unemployment; low inflation
b. inflation; low unemployment
c. unemployment; low interest rates
d. inflation; low interest rates
e. inflation; a stable foreign exchange rate

____ 37. Crowding out occurs by

a. causing reduced government purchases of goods and services
b. reducing the value of the multiplier used for government purchases of goods and services by increasing the interest rate
c. reducing the value of the multiplier used for government purchases of goods and services by increasing the marginal propensity to consume
d. reducing the value of the multiplier used for government purchases of goods and services by decreasing the marginal propensity to consume
e. increasing the value of the multiplier used for government purchases of goods and services by increasing the marginal propensity to consume

____ 38. If the federal government budget deficit increases, then interest rates will ________, the U.S. dollar will ________, and the foreign trade deficit will ________.

a. increase; depreciate; decrease
b. increase; appreciate; increase
c. increase; depreciate; increase
d. decrease; appreciate; increase
e. decrease; depreciate; decrease

____ 39. Which of the following is true?

a. Both c and d are correct.
b. Both c and e are correct.
c. A country should specialize in production of the good in which it has the lowest opportunity cost.
d. A country should specialize in production of the good in which it has a comparative advantage.
e. A country should specialize in production in the good in which it has an absolute advantage.

____ 40. Under the most-favored-nation clause, WTO members

a. must offer the same trade concessions to non-member countries that they offer to member nations
b. are permitted to trade only with other WTO member nations
c. must lower their tariffs by at least 50% for trade with favored nations
d. must offer the same trade concessions to all member nations
e. must lower their quotes by at least 50% for trade with favored nations

Solution Preview

1. We need the demand curve to shift inward. answer a is the only one that accomplishes this.

When the price of a complement good rises, people buy less of it. Thus demand will decrease as well.

6. e. people in primitive societies have limited wants

8. a. The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate. A full term is fourteen years. One term begins every two years, on February 1 of even-numbered years.

____ 12. If the required reserve ratio is 10 percent and a bank receives a new deposit for $100,000, then the

c. bank's liabilities increase by $100,000

____ 13. The liquidity of an asset indicates

d. how likely people are to convert it into the medium of exchange without a significant loss of value

____ 20. The demand for money is based primarily on money's role as a(n)

b. medium of exchange

____ 21. People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

c. more; decreases; sell

____ 22. The relationship between the interest rate and the quantity of money demanded

b. is an inverse relationship

____ 23. If the ...

Solution Summary

Miscellaneous multiple choice problems about monetary, fiscal and political policies.

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