Question 1 1. Using aggregate supply and demand analysis, discuss how the following will affect the aggregate level of output and the price level in the economy.  Use a SRAS curve.  You need to determine whether the AD or SRAS curve will shift, in which direction it will shift, and how this will affect aggregate output and the price level. a. A hurricane that destroys half the supply of goods produced in Florida. b. An increase in the money supply. Question 6 1. If the required reserve ratio is 10% and $1,000 of new bank reserves are created by the Federal Reserve, what is the maximum potential increase in the quantity of money in the economic system (not just the money created by the banking system but the total money supply)?  Why might the money supply not increase by the maximum possible amount?  Make sure you show your calculations and answer both parts of this question.  Use the following equation to answer this question: Maximum Potential Increase in the Money Supply = (1/r) x Monetary Base, where r is the required reserve ratio. Question 8 Which of the following is held constant in defining the Law of Demand: 1. population 2. technology 3. price of inputs 4. price of related goods 2 points   Question 9 Scalping and black marketing happen because of 1. price floor 2. price ceiling 3. minimum wage 4. abundant supply 2 points   Question 10 Say's Law implies 1. equilibrium in goods market 2. full employment 3. 1 only 4. both 1 and 2 2 points   Question 11 Producer's surplus is 1. the triangle above the equilibrium price 2. the big triangle between demand price and supply price 3. the triangle below the market price 4. none of the above 2 points   Question 12 Assume inflation rate is 3% and nominal GDP goes up by 3%. Real GDP growth will be 1. higher than nominal GDP 2. lower than nominal GDP 3. same as nominal GDP 4. none of the above 2 points   Question 13 Assume unemployment rate is reported to be 8.2%. A survey conducted by a reputable institution shows nearly one hundred thousand people quit looking for job. The reported unemployment rate of 8.2% is 1. accurate 2. overstated 3. understated 4. all of the above depending on how you look at it 2 points   Question 14 Money is used as a unit of account. This means money 1. cannot store value for use in the future. 2. is used to measure the exchange value and costs of goods, services, assets, and resources. 3. has little or no intrinsic value. 4. is dependent of the quantity of gold held by the Federal Reserve. 2 points   Question 15 Which of the following is true? 1. In addition to the M1 money supply, the M2 money supply measure includes a number of highly liquid savings deposits. 2. The M1 money supply is larger than the M2 money supply. 3. Currency is the only component of the M1 money supply. 4. Outstanding credit card balances are included in the M2 money supply, but not the M1 figures. 2 points   Question 16 Which of t ...

1. Question 1
1.
Using aggregate supply and demand analysis, discuss how the
following will affect the aggregate level of output and the price
level in the economy. Use a SRAS curve. You need to
determine whether the AD or SRAS curve will shift, in which
direction it will shift, and how this will affect aggregate output
and the price level.
a. A hurricane that destroys half the supply of goods produced
in Florida.
b. An increase in the money supply.
Question 6
1.
If the required reserve ratio is 10% and $1,000 of new bank
reserves are created by the Federal Reserve, what is the
maximum potential increase in the quantity of money in the
economic system (not just the money created by the banking
system but the total money supply)? Why might the money
supply not increase by the maximum possible amount? Make
sure you show your calculations and answer both parts of this
question. Use the following equation to answer this question:
Maximum Potential Increase in the Money Supply = (1/r) x
Monetary Base, where r is the required reserve ratio.
Question 8
Which of the following is held constant in defining the Law of
Demand:
1.
population

2. 2.
technology
3.
price of inputs
4.
price of related goods
2 points
Question 9
Scalping and black marketing happen because of
1.
price floor
2.
price ceiling
3.
minimum wage
4.
abundant supply
2 points
Question 10
Say's Law implies
1.
equilibrium in goods market
2.
full employment

3. 3.
1 only
4.
both 1 and 2
2 points
Question 11
Producer's surplus is
1.
the triangle above the equilibrium price
2.
the big triangle between demand price and supply price
3.
the triangle below the market price
4.
none of the above
2 points
Question 12
Assume inflation rate is 3% and nominal GDP goes up by 3%.
Real GDP growth will be
1.
higher than nominal GDP
2.
lower than nominal GDP
3.
same as nominal GDP

4. 4.
none of the above
2 points
Question 13
Assume unemployment rate is reported to be 8.2%. A survey
conducted by a reputable institution shows nearly one hundred
thousand people quit looking for job. The reported
unemployment rate of 8.2% is
1.
accurate
2.
overstated
3.
understated
4.
all of the above depending on how you look at it
2 points
Question 14
Money is used as a unit of account. This means money
1.
cannot store value for use in the future.
2.
is used to measure the exchange value and costs of goods,
services, assets, and resources.
3.
has little or no intrinsic value.

5. 4.
is dependent of the quantity of gold held by the Federal
Reserve.
2 points
Question 15
Which of the following is true?
1.
In addition to the M1 money supply, the M2 money supply
measure includes a number of highly liquid savings deposits.
2.
The M1 money supply is larger than the M2 money supply.
3.
Currency is the only component of the M1 money supply.
4.
Outstanding credit card balances are included in the M2 money
supply, but not the M1 figures.
2 points
Question 16
Which of the following assets can a commercial bank count as
reserves?
1.
its holding of U.S. Treasury bills.
2.
its vault cash and deposits with the Fed.
3.
its outstanding loans.

6. 4.
the savings accounts of its depositors.
2 points
Question 17
Suppose a bank receives a new deposit of $500. The bank
extends a new loan of $400 because it is required to hold the
other $100 on reserve. What is the legal required reserve ratio?
1.
10 percent
2.
15 percent
3.
20 percent
4.
25 percent
2 points
Question 18
The major overall purpose of the Federal Reserve System is to
1.
keep the discount rate flexible.
2.
insure the deposits of persons holding funds with banking
institutions.
3.
regulate the money supply, and, thereby, provide a monetary
climate that is in the best interest of the economy.

7. 4.
regulate the levels of excess reserves held by member banking
institutions.
2 points
Question 19
If the Fed purchases government securities from the public, the
1.
money supply will decrease.
2.
reserves of commercial banks will decrease.
3.
required reserves ratio will increase.
4.
money supply will increase
2 points
Question 20
If the Fed decreased the discount rate,
1.
the earnings of the Fed would increase.
2.
in incentive of commercial banks to borrow from the Fed would
be reduced.
3.
the prime interest rate would automatically decline.
4.
commercial banks probably would reduce their excess reserves

8. and be more willing to extend additional loans.
2 points
Question 21
Suppose that during a period of inflation, the Fed reduced its
holding of U.S. securities from $600 billion to $580 billion.
This indicates that the Fed was
1.
seeking to reduce the money supply to decrease inflation.
2.
trying to force Congress to decrease taxes.
3.
expanding the money supply and stimulating employment.
4.
expanding the money supply, even though the existing inflation
suggested a restrictive policy would be more appropriate.
2 points
Question 22
If the Fed shifts to a more restrictive monetary policy in order
to help control inflation, the policy shift will generally
1.
stimulate aggregate demand and real output as soon as the
policy is instituted.
2.
reduce aggregate demand immediately and quickly bring the
inflation under control.
3.
reduce aggregate demand and help bring inflation under control,

9. but the primary effects may not be felt for several months or
quarters.
4.
lower real interest rates in the short run, but in the long run, the
real interest rates will rise.
2 points
Question 23
Persistently expansionary monetary policy that stimulates
aggregate demand and leads to inflation will
1.
lead to higher rates of real output in the long run.
2.
fail to increase real output once decision makers fully anticipate
inflation.
3.
lead to lower nominal interest rates once decision makers fully
anticipate the inflation.
4.
permanently reduce the rate of unemployment below its natural
rate.
2 points
Question 24
The index of leading indicators is a (n)
1.
alphabetical listing of the most popular indicators in the
economy for a given month.
2.

10. composite index of indicators that provides information on the
future direction of the economy.
3.
measure of the level of aggregate output.
4.
composite index designed to measure inflation.
2 points
Question 25
If the economy was sliding into a recession, an activist would
call for
1.
a tax decrease.
2.
restrictive monetary policy.
3.
a reduction in the size of the Federal deficit.
4.
a reduction in government expenditures.
2 points
Question 26
Suppose the MPC of Banana Republic is .9 and the country is in
recession. The government wishes to get out of the recession
through a massive expenditure program. If the recessionary gap
is 900 million Euros, how much will the government need to
spend?
1.
900 million Euros

11. 2.
100 million Euros
3.
200 million Euros
4.
90 million Euros
2 points
Question 27
Which equation is correct?
1.
MPC + APC = 1
2.
MPC+APS =1
3.
MPC+MPS=2
4.
MPC = 1 -MPS
2 points
Question 28
The size of the money multiplier may not be equal to its
theoretical value because
1.
of calculation errors
2.
of Fed's reluctance to increase money supply

12. 3.
not entire part of the loans are deposited
4.
the reserve ratio is high
2 points
Question 29
Suppose the Fed assumed the economy would get out of
recession in 18 months, and starts buying securities to ease the
transition of the economy. After 18 months, inflation rate goes
up from 3 per cent to 7 per cent. This is an example of
1.
cost-push inflation
2.
demand-pull inflation
3.
counter-cyclical monetary policy
4.
all of the above
2 points
Question 30
The paradox of thrift implies that
1.
the average savings rate of 6% of Americans is too low
2.
the average savings rate of 6% of Americans is too high

13. 3.
while high rate of savings by some citizens is good, higher rate
of savings by Americans may reduce aggregate demand
4.
Americans should not save at a higher rate than citizens of
countries with whom we have high volumes of trade
2 points
Question 31
Suppose during a recessionary period, Apple Republic created a
government-sponsored works program worth 150 million dollar
and collected the entire 150 million dollar through new taxes.
The MPS of Apple Republic is .2. GDP of Apple Republic will
go up by
1.
750 million dollars
2.
600 million dollars
3.
zero dollars
4.
150 million dollars
2 points
Question 32
The balanced budget multiplier is
1.
equal to the size of the budget
2.

14. equal to the tax multiplier plus 1
3.
equal to the tax multiplier minus 1
4.
none of the above
2 points
Question 33
Economic growth is important because expansion in the output
of goods and services
1.
necessarily creates more jobs (more work for people)
2.
makes it possible for individuals to consume more and achieve
higher living standards.
3.
leads to an increase in the general level of prices.
4.
generates additional tax revenues for the government.
2 points
Question 34
GDP = C+ I+ G is a model of
1.
closed economy equilibrium
2.
private economy equilibrium

15. 3.
open economy equilibrium
4.
no growth equilibrium
2 points
Question 35
Which of the following is most likely to be a major source of
growth in per capita GDP?
1.
a high investment/GDP ratio
2.
a high rate of inflation
3.
rapid population growth
4.
rapid growth in the money supply
2 points
Question 36
The value of money varies:
1.
Inversely with the price level.
2.
Directly with the volume of employment.
3.
Directly with the price level.

16. 4.
Directly with the interest rate.
2 points
Question 37
Compared with fiscal policy, monetary policy is:
1.
quicker and easier to implement.
2.
slower and more cumbersome to implement
3.
more dependent on Congressional action.
4.
More likely to produce an offsetting net export effect.
2 points
Question 38
Critics of economic growth:
1.
contend that growth and industrialization reduce pollution.
2.
argue that economic growth does not resolve socioeconomic
problems such as income inequality.
3.
point out that growth results in greater economic security for
workers.
4.
say that its benefits acrue nearly exclusively to white males.

17. 2 points
Question 39
We sell more merchandize goods to India than India sells to us
1.
our balance of payment with India is positive
2.
India's balance of payment with us is positive
3.
our balance of trade with India is positive
4.
both 1 and 3
2 points
Question 40
An example of non-tariff barrier includes
1.
A specific tax on imported Mexican strawberries
2.
A limit on the import of Mexican strawberries
3.
ban on Mexican strawberries due to health concerns
4.
all of the above
2 points
Question 41
The economist who introduced the theory of comparative

18. advantage is
1.
Adam Smith
2.
J. B. Say
3.
J. M. Keynes
4.
David Ricardo
2 points
Question 42
Dumping is
1.
selling below internationally accepted price
2.
selling below cost
3.
selling without tariff
4.
selling in a market when there is a quota