Question

The crowding out effect is zero if

Select one:

a. the LM-curve is vertical

b. the central bank conducts open market sales following fiscal expansion

c. income is stimulated via a tax cut rather than an increase in government spending

d. the central bank conducts open market purchases following fiscal expansion

e. the LM-curve is horizontal

An asset (other than money) is considered to be more liquid if

Select one:

a. it can be quickly and cheaply transferred into money

b. it has a longer maturity

c. it is issued by a major company rather than the government

d. it earns a high rate of interest or dividend

e. it has more than one use

Fiscal policy is weakest and monetary policy is strongest when

Select one:

a. investment is very interest inelastic

b. money demand is very interest elastic

c. the IS-curve is very steep and the LM-curve is very flat

d. we are in the liquidity trap

e. we are in the classical case

According to the Baumol-Tobin square- root formula: tc= $4, Y = 10.000, i = 0,5. What is the amount of money balances for transactions?

Select one:

a. 600

b. 400

c. 100

d. 200

e. 50

High-powered money

Select one:

a. includes time and demand deposits held at banks

b. earns more interest than other forms of money

c. consists of currency held by the public and bank reserves

d. is created whenever the Fed sells government bonds

e. consists of currency held by the public and demand deposits at banks

Crowding out occurs when

  

Select one:

a. expansionary monetary policy fails to stimulate economic growth

b. tax increases result in a drop in consumption

c. a policy designed to increase the budget surplus causes the economy to enter a recession

d. an increase in defense spending causes a decrease in consumption

e. expansionary fiscal policy causes interest rates to rise, thereby reducing private spending

According to the quantity theory of money, an increase in the money supply will result in

Select one:

a. a proportional increase in real GDP

b. an increase in nominal GDP

c. a decrease in velocity of equal magnitude

d. an increase in velocity of equal magnitude

e. a decrease in money demand

If nominal GDP is $10,400 billion, M1 is $1,300 billion and M2 is $5,200 billion, then

Select one:

a. the price level must be 2.0

b. the income velocity of M1 is 1/4 of the income velocity of M2

c. the income velocity of M1 is about two times as high as the income velocity of M2

d. the income velocity of M1 is about four times as high as the income velocity of M2

e. the income velocity of M2 must be 1/2

The original Phillips curve shows an inverse relationship between

Select one:

a. the rate of change in money wages and the rate of unemployment

b. the level of prices and wage rate changes

c. the level of output and prices

d. the level of output and unemployment

e. the level of prices and employment

Assume nominal money supply grows by 6% and real GDP grows by 4%. We can conclude that the rate of inflation is about

Select one:

a. +2% plus the percentage change in velocity

b. +2%

c. +6% minus the percentage change in velocity

d. +6%

e. +2% minus the percentage change in velocity

In which exchange rate system do central banks always stand ready to buy and sell their currency at a predetermined price?

Select one:

a. a floating exchange rate system

b. a fixed exchange rate system

c. a flexible exchange rate system

d. a managed exchange rate system

e. a dirty floating exchange rate system

If the real exchange rate is 1.0, the price level of U.S. goods is 120, and the dollar price of foreign exchange is 0.8, what is the price level of foreign goods?

Select one:

a. 150

b. 120

c. 75

d. 80

e. 100

In which exchange rate system do central banks always stand ready to buy and sell their currency at a predetermined price?

Select one:

a. a floating exchange rate system

b. a fixed exchange rate system

c. a flexible exchange rate system

d. a managed exchange rate system

e. a dirty floating exchange rate system

If the real exchange rate is 1.0, the price level of U.S. goods is 120, and the dollar price of foreign exchange is 0.8, what is the price level of foreign goods?

Select one:

a. 150

b. 120

c. 75

d. 80

e. 100

If there is a decrease in government transfer payments

Select one:

a. the IS-curve will become flatter and shift to the right

b. the IS-curve will shift to the left

c. the LM-curve will shift to the left

d. the IS-curve will become steeper and shift to the left

e. the LM-curve will become steeper and shift to the left

According to the Baumol-Tobin square-root formula, money demand for transactions

Select one:

a. decreases as the cost of illiquidity increases

b. varies inversely with both the interest rate and the level of income

c. depends only on the level of income

d. depends only on the cost of illiquidity

e. increases as the interest rate decreases or income increases

The liquidity trap exists when

Select one:

a. money demand is completely insensitive to changes in the interest rate

b. the LM-curve is vertical

c. an increase in government spending is always fully crowded out

d. the LM-curve is horizontal

e. the IS-curve is vertical

In an IS-LM model, an increase in autonomous spending

Select one:

a. is caused by a fall in the interest rate

b. is caused by a movement along the IS-curve from left to right

c. will lead to an increase in income and the interest rate

d. will cause a fall in the interest rate

e. will shift the LM-curve to the right

Wages are considered to be sticky rather than flexible since

Select one:

a. labor contracts contain cost-of-living adjustments

b. firms tend to look at labor as an expendable resource

c. firms are unsure about their competitors' behavior and only reluctantly change prices and wages following a change in aggregate demand

d. labor contracts contain standard of living

e. firms encounter menu costs when changing wages but not when changing prices

Which of the following is not one of the reasons why a person is unemployed?

Select one:

a. He/she may be a new entrant or reentrant into the labor force

b. The person may quit a job in order to look for other employment and may register as unemployed while searching

c. The person may stop looking for a job

d. The person may be laid off

e. The worker may lose a job (fired or firm closes)

If the required reserve ratio is 6%, the excess reserve ratio is 4%, and the currency-deposit ratio is 40%, by how much would money supply change if the CB made open market sales valued at $50 million?

Select one:

a. decrease by $140 million

b. decrease by $250 million

c. increase by $140 million

d. decrease by $ 500 million

e. increase by $250 million

A country following a beggar-thy-neighbor policy is

Select one:

a. inducing an exchange rate appreciation to create unemployment in other countries

b. imposing tariffs on imports

c. imposing a tax on goods that are exported

d. asking other nations for foreign aid

e. inducing an exchange rate depreciation to increase domestic output

Answer 1

Answer Option E) LM - curve is horizontal.

The reason is that increase in government spending do not cause any change in the interest rate and investment.

Answer Option A) it can be quickly and cheaply transferred into money

An asset (other than money) is considered to be more liquid if it can be quickly and cheaply transferred into money

Answer Option A) Investment is very interest inelastic

Fiscal policy is weakest and monetary policy is strongest when investment is very interest inelastic. It is the classical range.

Answer Option ) c. consists of currency held by the public and bank reserve

High-powered money  consists of currency held by the public and bank reserve

Answer Option e.) Expansionary fiscal policy causes interest rates to rise, thereby reducing private spending

The crowding out effect occurs when government make use of expansionary fiscal policy. This results in fall in private spending of consumers which result in full crowding effect.

Answer Option C) a decrease in velocity of equal magnitude

According to the quantity theory of money, an increase in the money supply will result in a decrease in velocity of equal magnitude

Answer Option a. the rate of change in money wages and the rate of unemployment

The original Phillips curve shows an inverse relationship between  the rate of change in money wages and the rate of unemployment. As money wages rises unemployment falls. There is positive tradeoff between inflation and unemployment.