Assignment:
1. Suppose there is a policy mix of expansionary monetary policy and expansionary fiscal policy. This combination of policies must cause:
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a.
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an increase in the interest rate (i)
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b.
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a reduction in i
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c.
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an increase in output (Y)
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d.
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a reduction in Y
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2. Suppose the consumption equation is represented by the following: C = 100 + .75(Y-T). The multiplier in this economy is ________.
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a.
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0.25
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b.
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2
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c.
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4
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d.
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1.33
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3. Suppose the public only hold currency (i.e. there are no banks). The demand for money is given by
Money demand = $Y(0.4 - i)
The nominal income is $100 and interest rate is held fixed by the central bank at 10% (or 0.1). Starting from the initial equilibrium suppose nominal income increases to $125. The increase in income will require the central bank to increase the supply of money from ________ to ________ .
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a.
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100; 125
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b.
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300; 375
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c.
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30; 37.5
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d.
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40; 50
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4. Use the following information to answer the question below.
C = 1000 + .8(Y-T)
I = 800
G = 1800
T = 1000
The equilibrium level of GDP for the above economy equals:
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a.
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10000
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b.
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14000
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c.
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16000
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d.
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20000
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5. Suppose a bond offers to pay $1000 in one year and currently sells for $900. Given this information, we know that the interest rate on the bond is:
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a.
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9%.
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b.
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10%.
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c.
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11.1%
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d.
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90%
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e.
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110%
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6. Suppose the economy is currently operating on both the LM curve and the IS curve. Given this information, we know that:
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a.
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the goods market is in equilibrium
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b.
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the bond market is in equilibrium
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c.
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the money market is in equilibrium
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d.
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financial markets are in equilibrium
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e.
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all of the above
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7. The four components of national income are
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A
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consumption spending, savings, government purchases, net exports.
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B
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consumption spending, investment spending, government purchases, gross exports.
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C
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consumption spending, investment spending, tax revenue, net exports.
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D
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consumption spending, investment spending, government purchases, net exports.
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8. When the central bank controls the interest rate, the aggregate demand (AD) curve is downward sloping because:
a. a reduction in the money supply (M) will cause an increase in the interest rate, a reduction in investment, and a reduction in output.
b. a reduction in the aggregate price level (P) will cause the central bank to reduce the interest rate and thus increase output.
c. a reduction in P will cause an increase in the real wage, a reduction in employment, and a reduction in output.
d. as P increases, goods and services become relatively more expensive and individuals respond by reducing the quantity demanded of goods and services.
9. Suppose there is a reduction in the price of oil. This change in the price of oil will cause which of the following in the short run?
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a.
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an increase in output
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b.
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a reduction in the price level
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c.
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a reduction in the interest rate
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d.
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all of the above
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e.
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none of the above
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10. A reduction in the minimum wage will tend to cause which of the following?
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A
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an upward shift in the wage setting curve
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B
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a downward shift in the wage setting curve
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C
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an upward shift in the price setting curve
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D
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a downward shift in the price setting curve
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d
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none of the above
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