Question

The economy is in equilibrium, TP = TE, and Real GDP is $4,555 billion. The MPC is 0.80, the multiplier is operative, and idle resources exist at each expenditure round. Government purchases rise by $10 billion. As a result, the __________ curve shifts __________, inventory levels unexpectedly __________, business firms ___________ the quantity of goods and services they produce, and Real GDP __________ by __________.

a. TE; downward; fall; increase; rises; $10 billion.

b. TP; rightward; fall; decrease; falls; $50 billion

c. TE; upward; fall; increase; rises; $50 billion

d.

TE; downward; rise; increase; rises, $50 billion

Bank A has checkable deposits of $900,000 and total reserves of $112,000. If the required reserve ratio is 8 percent, the bank has excess reserves of

a. $40,000.

b. $72,000.

c. $13,440.

d.

$4,000

A tariff is imposed on strawberries.  The tariff will ___________ the price of strawberries in the domestic market, _____________ the quantity of strawberries imported in the domestic market, and ____________ consumers’ surplus.

a. raise; lower; lower

b. lower; raise; lower

c. raise; lower; raise

d.

lower; lower; raise

The economy is in a recessionary gap, wages are inflexible downward, and there is complete crowding out. Which of the following is consistent with this state of affairs?

a. The economy will soon self-regulate and produce Natural Real GDP.

b. Expansionary fiscal policy will be effective at removing the economy from the recessionary gap.

c. If expansionary fiscal policy is implemented, the AD curve will shift to the right, and eventually the price level and Real GDP will rise.

d. b and c

e.

none of the above

When Bank A obtains a loan from the Fed, the

a. discount rate is probably higher than the federal funds rate.

b. bank’s reserves increase.

c. simple deposit multiplier decreases.

d. b and c

e. none of the above

Answer 1

Question 1) Option C: TE,Upward,Fall,Increases,Rises ,$50Billion

Reason: Since Government increases expenses TE curve will move upward and create short fall in output so business firms will produce more quantity and Real GDP will increase by 1/(1-MPC) times increase in government subsidy.

Question 2) Option A:$40000

Reason:

Required reserve =Reserve ratio% * Deposits=8%*900000=$72000

Since total reserve is $112000 so excess reserve is 112000-72000=$40000

Question 3) Option A: Raise,Lower ,Lower

Reason: Since Tariff is imposed prices of imported strawberry increases hence import of strawberry decreases,hence in domestic market price of Strawberry will increase which leads to decrease in consumer surplus.