Presentation on theme: "2000 AP Macro Exam [with some 1995 & 1990 questions] ["— Presentation transcript:
1 2000 AP Macro Exam [with some 1995 & 1990 questions] [ 2000 AP Macro Exam [with some 1995 & 1990 questions] [*represents what percent of 23,000 students chose the correct answer] [Includes 59 questions from 2000 Macro exam, 35 from 1995 exam, and 6 from 1990 exam]Basic Concepts1. (*78%) Which of the following is true according to the circular flow model?a. Firms are suppliers in both the product and factor markets.b. Firms are demanders in the product markets and suppliers in the factor markets.c. Households are demanders in both the product and factor markets.d. Households are demanders in the product markets & suppliers in the factor markets.e. The government is a demander in the product market only.2. (*78%) On the basis of the diagram showing an economy’s PPCfor two goods, which of the following statements must be true?I. The opportunity cost of moving from point P to point R is 10 units of Y.II. The opportunity cost of moving from point R to point P is 8 units of X.III. The opportunity cost of moving from point Q to point R is 0 units.a. I only b. III only c. I and II only d. II and III only e. I, II, & IIIGlobal Trade3. (*74%) An increase in Japan’s demand for U.S. goods would cause the dollar toa. depreciate because of inflationb. depreciate because the U.S. would be selling more dollars to Japanc. depreciate because the U.S. money supply would increase as exports rised. appreciate because Japan would be buying more U.S. dollarse. appreciate because Japan would be selling more U.S. dollars
2 they can expect which of the following domestic improvements? 4. (*65%) As nations specialize in production and trade in international markets,they can expect which of the following domestic improvements?I. Allocation of domestic resourcesII. Standard of livingIII. Self-sufficiencya. I only b. II only c. III only d. I and II only e. I, II, and III5. (*51%) Which of the following would be most likely to occur if the U.S. placedhigh tariffs on imported goods?a. Workers in the U.S. would have more jobs in the long run.b. Income in the U.S. would be redistributed from the rich to the poor.c. The U.S. standard of living would increase.d. The United States economy would become less efficient.6. (*58%) Mary Jane is a lawyer who can earn $150 per hour in her law practice. Sheis also an excellent carpenter who can build cabinets three times as fast asthe best carpenter, whose hourly wage is $20 per hour. Which of the followingis a correct economic statement?a. Mary Jane has a comparative advantage in law so she should specialize in law & hire acarpenter to make her cabinets.b. Mary Jane has an absolute & comparative advantage in both law and carpentry, so sheshould make her own cabinets while continuing to practice law.c. Mary Jane is three times faster than any carpenter so she could give up her law practice tobecome a carpenter.d. When carpenters work for lawyers, they should charge $150 per hour instead of $20 per hour.e. Because Mary Jane is an excellent carpenter, when the best carpenter works for Mary Jane,he can only charge one third as much, or $6.67 per hour.
3 GDP7. (*79%) Which of the following would represent an addition to a nation’s GDP?a. Ms. Smith purchases a share of stock in an automobile company.b. A retailer increases her stock of imported shoes.c. The government increases its domestic purchases of food for use by the military.d. A corporation sells shoes from last year’s inventory.e. A mother sells her car to her daughter.8. (*70%) If real GDP is increasing at 3% per year & nominal GDP is increasing at 7%per year, which of the following is necessarily true?a. Unemployment is increasing d. The economy is in a recession.b. The price level is increasing. e. The government is running a budget deficit.c. Exports exceed imports.9. (*44%) Which of the following would best explain a decline in potential GDP?a. Negative net investment d. A decrease in the infant mortality rateb. The discovery of vast new oil deposits e. A decrease in wages and profitsc. A lower price level10. (*60%) As a measure of economic welfare, GDP underestimates a country’sproduction of goods and services when there is an increase ina. the production of military goods d. household productionb. the production of anti-pollution devices e. legal servicesc. crime prevention services
4 rather than consumption, GDP would 11. (75%) If purchases of education and medical care were counted as investmentrather than consumption, GDP woulda. not change, because there is no change in total(aggregate) expendituresb. increase, because investment is included in GDP but consumption is notc. increase, because consumption is included in GDP but investment is notd. decrease, because investment is weighted more heavily than consumption in calculating GDPe. decrease because consumption is weighted more heavily than investment in calculating GDP.Unemployment, inflation, & business cycles12. (72%) The official unemployment rate is not an accurate indicator of actualunemployment in the economy becausea. structural unemployment is greater than cyclical unemployment at the going wage rateb. full employment is greater than natural unemploymentc. the unemployment rate is less than natural unemploymentd. the official rate does not include persons who have given up looking for work13. (64%) An increase in energy costs will most likely cause the price level andreal GDP to change in which of the following ways?Price Level Real GDPa. increase increaseb. increase decreasec. increase not changed. decrease increasee. decrease decrease
5 14. (58%) A contractionary supply shock would most likely result in a. an increase in AD d. a decrease in the general price levelb. an increase in national income e. a decrease in employmentc. an increase in GDP15. (82%) If the economy is operating in the intermediate range of the AS curve andif AD increases due to an increase in net exports, then the price level, output, &the unemployment rate are most likely to change in which of the following ways?Price Level Output Unemployment Ratea. increase increase increaseb. increase increase decreasec. increase decrease increased. increase decrease decreasee. decrease decrease increase16. (78%) The short-run AS curve is likely to shift to the left when there is an increase ina. the cost of productive resources d. the federal budget deficitb. productivity e. importsc. the money supply17. (54%) Which of the following best explains how an economy could simultaneouslyexperience high inflation and high unemployment?a. The government increases spending without increasing taxes.b. The government increases taxes without increasing spending.c. Inflationary expectations decline.d. Women and teen-agers stay out of the labor force.e. Negative supply shocks cause factor prices to increase
6 b. real disposable income and unemployment e. imports and exports 18. (89%) The intersection of the AS & the AD curve occurs at the economy’sequilibrium level ofa. real investment and the interest rate d. government expenditures & taxesb. real disposable income and unemployment e. imports and exportsc. real domestic output(GDP) and the price level19. (47%) Which of the following would most likely cause the U.S. economy to fallinto recession?a. increase in welfare payments d. a decrease in the required reserve ratiob. increase in exports e. an open market sale of bonds by the Fedc. a decrease in savings by consumers20. (58%) Which of the following would cause a rightward shift of the AS curve?a. an increase in interest ratesb. a tax increase of 50 cents per gallon for gasolinec. an across-the-board reduction of wages in the manufacturing sectord. the passage of legislation mandating a reduction in automobile pollutione. the shutdown of plants and movement of production of goods abroad21. (38%) Which changes in the AD & AS curves is likely to result in stagflation?a. the AD curve shifts to the left when the economy is in the classical range of the AS curve.b. the AD curve shifts to the right when the economy is in the classical range of the AS curve.c. the AD curve shifts to the right when the economy is in the Keynesian range of the AS curve.d. The AS curve shifts to the left.e. The AS curve shifts to the right.
7 Classical/Keynesian Economics 22. (80%) Which argument is typically associated with classical economists?a. A market economy is self-correcting and thus will not remain in a recession indefinitely.b. A market economy has stable prices and thus is usually free from inflation.c. A market economy requires a strong government to ensure that the market meets the needsof the people.d. A market economy needs only moderate assistance from the government to avoid an extendedrecession.e. A market economy eventually results in monopolies in both the input & output markets.23. (62%) According to the Keynesian saving schedule, when aggregateincome increases by a given amount, savings willa. remain the sameb. decrease by the amount of the change in incomec. increase by the amount of the change in incomed. increase by less than the amount of the change in incomee. increase by more than the amount of the change in income24. (49%) An important assumption in Keynesian theory is thata. prices are rigid downward & decreases in AD will lead to an increase in unemployment.b. price rigidity will cause downturns in the economy to self-correct.c. When AD is inadequate, prices will fall.d. When interest rates are high, many businesses borrow money.e. changes in the money supply are the major cause of changes in real output & price level.
8 real GDP and the price level? Real GDP Price Level 1995 AP Exam25. (73%) What would be the effect of a large increase in labor productivity on thereal GDP and the price level?Real GDP Price Levela. Increase Increaseb. Increase Decreasec. No effect Increased. decrease Increasee. Decrease Decrease26. (46%) Which of the following is true of supply shocks?a. They tend to change both relative prices and the general price level in the economy.b. They affect only the general PL.c. They can be anticipated and offset with appropriate fiscal policy.d. They can be anticipated and offset with appropriate monetary policy.e. They make the AS curve vertical.27. (45%) Suppose that from 2003 to 2004, unemployment fell from 7.2 to 7.0% andinflation fell from 3.8 to 1.1%. An explanation of these changes might be that thea. AD curve shifted to the left c. AS curve shifted to the leftb. AD curve shifted to the right d. AS curve shifted to the righte. short-run Phillips curve shifted to the right28. (46%) Which of the following is a key feature of Keynesian economics?a. The level of saving depends mostly on interest rates.b. The level of government expenditure depends mostly on interest rates.c. Supply creates its own demand.d. Macroeconomic equilibrium can occur at less than full employment.e. Wages are more flexible than prices.ADAS1AS2PL1PL2
9 30. (70%) An inflationary gap could be reduced by 29. (35%) According to Keynesian theory, the most important determinant of savingand consumption is thea. interest rateb. price levelc. level of incomed. level of employmente. flexibility of wages and prices30. (70%) An inflationary gap could be reduced bya. an increase in government spendingb. an increase in the supply of moneyc. an increase in the income tax rated. a decrease in the discount ratee. a decrease in the reserve requirement31. (75%) Which of the following would most likely lead to a decrease in AD?a. a decrease in taxesb. a decrease in interest ratesc. an increase in household savingsd. an increase in household consumptione. an increase in business firms’ purchases of capital equipment from retained earnings32. (52%) Which of the following would result in the largest increase in AD?a. $30 billion increase in military spending and a $30 billion open-market purchase of G bondsb. $30 billion increase in military spending and a $30 billion open-market sale of G bondsc. $30 billion tax cut and a $30 billion open-market sale of G bondsd. $30 billion tax increase and a $30 billion open-market purchase of G bondse. $30 billion increase in social security payments and a $30 billion open-market sale of G bonds
10 SRAS/LRAS Question on 95 Exam 33. If AD remains constant, the equilibrium price levels in theshort run and in the long run will be _____ & _____?34. If the government uses fiscal policy to get out of therecession, price level will end up at _____?
11 35. (81%) The value of the spending multiplier (ME) decreases when a. tax rates are reduced d. government spending increasesb. exports decline e. the marginal propensity to save increasesc. imports decline36. (75%) Which of the following policies would a Keynesian recommendduring a period of high unemployment and low inflation?a. decreasing the MS to reduce ADb. decreasing taxes to stimulate ADc. decreasing government spending to stimulate ASd. balancing the budget to stimulate AS37. (47%) Which of the following best explains why equilibrium income willincrease by more than $100 in response to a $100 increase in G?a. Incomes will rise, resulting in a tax decrease.b. Incomes will rise, resulting in higher consumption.c. The increased spending raises the aggregate price level.d. The increased spending increases the money supply, lowering interest rates.e. The higher budget deficit reduces investment.38. (56%) Unexpected increases in inventories usually precedea. increases in inflation b. increases in imports c. stagflationd. decreases in production e. decreases in unemployment
12 S AE C+Ig C 39. (63%) The economy on the right is currently experiencinga. inflation b. recession c. expansiond. stagflation e. rapid growth40. (77%) Correct monetary policy toreach FE GDP is to increasea. the MS b. the RR c. discount rated. taxes e. exports41. (36%) The minimum increase in governmentspending to reach full employment isa. $2,000 b. $1,000 c. $500d. $ e. $10042. (58%) In the simple Keynesian AE model [not AD/AS] of an economy,changes in Ig or G will lead to a change in which of the following?a. the price level b. the level of output and employment c. interest ratesd. the AS curve43. (83%) In a closed-private in which the APC is .75, which of following is true?a. If income is $100, then saving is $75. d. If income is $200, then “C” is $75b. If income is $100, then “C” is $50 e. If income is $500, then saving is $100c. If income is $200, then saving is $50AESC+IgE$500CA$400Full.Employ.$800 $1,000 $2,000
13 44. (63%) Suppose that DI is $1,000, consumption is $700, and the MPC is .6. If DI then increases by $100, consumption and savings will equal which ofthe following?Consumption Savingsa. $ $280b. $ $400c. $ $320d. $ $440e. $ $340Fiscal Policy45. (73%) An inflationary gap can be eliminated by all of the following EXCEPTa. an increase in personal income taxes d. a decrease in Gb. an increase in the MS e. a decrease in Xnc. an increase in the interest rate46. (56%) A major advantage of automatic stabilizers in fiscal policy is that theya. reduce the public debtb. increase the possibility of a balanced budgetc. stabilize the unemployment rated. go into effect without passage of new legislatione. automatically reduce the inflation rate
14 47. (70%) In the short run, a contractionary fiscal policy will cause AD, output, and the price level to change in which of the following ways?AD Output Price levela. decrease decrease decreaseb. decrease increase increasec. increase decrease decreased. increase increase increase48. (52%) Crowding out due to government borrowing occurs whena. lower interest rates increase private sector investmentb. lower interest rates decrease private sector investmentc. higher interest rates decrease private sector investmentd. a smaller money supply increases private sector investment49. (41%) If, at FE, the G wants to increase its spending by $100 billionwithout increasing inflation in the short run, it must do which of the following?a. raise taxes by more than $100 billion c. raise taxes by less than $100b. raise taxes by $100 billion d. lower taxes by $100 billion50. (42%) Compared to expansionary monetary policies adopted tocounteract a recession, expansionary fiscal policies tend to result ina. less public spending c. a high rate of economic growthb. higher interest rates d. lower prices
15 51. (71%) An increase in which will increase the value of the ME? 1995 AP Exam51. (71%) An increase in which will increase the value of the ME?a. The supply of money d. The marginal propensity to consumeb. Equilibrium output e. The required reserve ratioc. Personal income tax rates52. (61%) An AS curve may be horizontal over some range because within that rangea. a higher PL leads to higher interest rates, which reduces the MS & “C”b. changes in the aggregate PL do not induce substitutionc. output cannot be increased unless prices and interest rates increased. rigid prices prevent employment from fluctuatinge. resources are underemployed & an increase in AD will be satisfied without any pressure on the PL53. (45%) What could cause simultaneous increases in inflation & unemploymenta. a decrease in government spending d. An increase in inflationary expectationsb. A decrease in the money supply e. An increase in productivityc. A decrease in the velocity of money54. (85%) Which of the following will result in the greatest increase in AD?a. A $100 increase in taxesb. A $100 decrease in taxesc. A $100 increase in government expendituresd. A $100 increase in government expenditures, coupled with a $100 increase in taxese. A $100 increase in government expenditures, couples with a $100 decrease in taxes55. (65%) Which of the following will result from a decrease in government spending?a. An increase in output d. A decrease in ASb. An increase in the price level e. A decrease in ADc. An increase in employment
16 C C+Ig 56. (56%) If the MPC increases, the equilibrium $700 Questions refer to the diagram(rt),which depicts an economy’s “C” function.56. (56%) If the MPC increases, the equilibriumlevels of income and consumption willchange in which of the following ways?Equil. Level Equil. Levelof Income of Consumptiona. No change No changeb. No change Increasec. Increase No changed. Increase Increasee. Decrease DecreaseSC+IgCExpendituresC2+ $100 IgC1$700$1,500 $2,000 Real Income57. (48%) If private investment of $100 is added to the economy, the equilibrium levelsof income and consumption will change in which of the following ways?Equil. Level Equil. Levelof Income of Incomea. Increase Decreaseb. Increase Increasec. Increase No changed. No change Increasee. No change No change
17 58. (61%) The graph indicates equilibrium at E for a closed economy without G. If theaddition of G results in equilibrium at F,which of the following is true?a. G is $300 and the multiplier is 5.b. G is $100 and the multiplier is 5.c. G is $100 and consumption increased by $500.d. G and Ig increase by $500.e. Consumption and GDP increase by $500 each.AEC+Ig+GFC+IgE$300$200$1,000 $1, GDP59. (84%) According to Keynesian theory, decreasing taxes and increasing G willmost likely change consumption and unemployment in which of the following ways?Consumption Unemploymenta. Decrease No changeb. Decrease No changec. Increase Decreased. Increase Increasee. No change Decrease60. (79%) In an economy at full employment, a presidential candidate proposes cuttingthe government debt in half in 4 years by increase T and reducing G. According toKeynesian theory, implementation of these policies is most likely to increasea. unemployment d. aggregate supplyb. consumer prices e. the rate of economic growthc. aggregate demand
18 fiscal policy most effective in stimulating production and employment? 61. (79%) If the economy is in a severe recession, which of the following is thefiscal policy most effective in stimulating production and employment?a. Government spending increases.b. Government spending decreases.c. Personal income taxes are increased.d. The Fed sells bonds on the open market.e. The Fed buys bonds on the open market.62. (27%) Faced with a large federal budget deficit, the government decides to decreaseexpenditures and tax revenues by the same amount. This action will affectoutput and interest rates in which of the following ways?Output Interest Ratesa. Increase Increaseb. Increase Decreasec. No change Decreased. Decrease Increasee. Decrease Decrease63. (28%) If crowding out only partially offsets the effects of a tax cut, which of thefollowing changes in interest rates and GDP are most likely to occur.Interest Rates GDPa. Increase Increaseb. Increase Remain unchangedc. Increase Decreased. Remain unchanged Increasee. Decrease Decrease
19 a. lower real interest rates and more investment Money and the Fed64. (61%) In the Keynesian model, an expansionary monetary policy will lead toa. lower real interest rates and more investmentb. lower real interest rates and lower pricesc. higher real interest rates and lower pricesd. higher real interest rates and higher real incomee. higher nominal interest rates and more investment65. (58%) Which of the following will most likely occur in an economy if more money isdemanded than is supplied?a. the amount of investment spending will increase. d. interest rates will decreaseb. the demand curve for money will shift to the left e. interest rates will increase.c. the demand curve for money will shift to the right.66. (64%) When consumers hold money rather than bonds because they expect theinterest rate to increase in the future, they are holding money for what purposes?a. transactions c. speculation (asset)b. unforeseen expenditures d. illiquidityMoney Creation67. (80%) If on receiving a checking deposit of $300 a bank’s ER increased by $255,the RR must be:a. 5% b. 15% c. 25% d. 35% e. 45%
20 maximum amount indicated by the money multiplier when 68. (62%) The money-creating ability of the banking system will be less than themaximum amount indicated by the money multiplier whena. interest rates are highb. the velocity of money is risingc. people hold a portion of their money in the form of currencyd. the unemployment rate is low69. (71%) RR is 20%. If a bank initially has no ER and $10,000 cash is deposited in thebank, the maximum amount by which this bank may increase its loans isa. $2, b. $8, c. $10, d. $20, e. $50,00070. (86%) RR is 15% and that bank receives a new DD of $200. Which of thefollowing will most likely occur in the bank’s balance sheet?Liabilities(DD) Required Reservesa. increase by $200 increase by $170b. increase by $200 increase by $30c. increase by $200 no changed. decrease by $200 decrease by $30e. decrease by $200 decrease by $170The Fed and Monetary Policy71. (89%) The Federal Reserve can increase the money supply bya. selling gold reserves to the banksb. selling foreign currency holdingsc. buying government bonds on the open marketd. borrowing reserves from foreign governments
21 following short-run effects on real interest rates and real output? 72. (73%) An increase in the money supply is most likely to have which of thefollowing short-run effects on real interest rates and real output?Real Interest Rates Real Outputa. decrease decreaseb. decrease increasec. increase decreased. increase no changee. no change increase73. (81%) Under which of the following conditions would a restrictive (contractionary)monetary policy be most appropriate?a. high inflation d. low interest ratesb. high unemployment e. a budget deficitc. full employment with stable prices74. (82%) The Fed can change the U.S. money supply by changing thea. number of banks in operation d. prime rateb. velocity of money e. discount ratec. price level75. (*30%) If the money stock decreases but nominal GDP remains constant,which of the following has occurred?a. income velocity of money has increased. d. price level has decreased.b. income velocity of money has decreased. e. real output has decreased.c. price level has increased.
22 combinations of monetary and fiscal policy actions? 76. (54%) Policy-makers concerned about fostering long-run growth in an economy thatis currently in a recession would most likely recommend which of the followingcombinations of monetary and fiscal policy actions?Monetary Policy Fiscal Policya. sell bonds reduce taxesb. sell bonds raise taxesc. no change raise taxesd. buy bonds reduce spendinge. buy bonds no change77. (76%) Open market operations refer to which of the following activities?a. the buying and selling of stocks in the New York stock Marketb. the loans made by the Fed to member commercial banksc. the buying and selling of government securities by the Federal Reserved. the government’s purchases and sales of municipal bondse. the government’s contribution to net exports78. (58%) An open market sale of bonds by the Fed will most likely change themoney supply, the interest rate, and the value of the U.S. dollarin which of the following ways?Money Supply Interest Rate Value of the Dollara. increase decrease decreaseb. increase decrease increasec. decrease decrease decreased. decrease increase increasee. decrease increase decrease
23 79. (82%) Commercial banks can create money by a. transferring depositors’ accounts at the Fed for conversion to cashb. buying Treasury bills from the Federal Reservec. sending vault cash to the Fedd. maintaining a 100% reserve requiremente. lending excess reserves to customers80. (65%) If the RR is 20%, the existence of $100 worth of ER in the banking systemcan lead to a maximum expansion of the money supply equal toa. $ b. $ c. $ d. $ e. $75081. (71%) If the Fed lowers the RR, which of the following would most likely occur?a. Imports will rise, decreasing the trade deficit.b. The rate of saving will increase.c. Unemployment and inflation will both increase.d. Businesses will purchase more factories and equipment.e. The budget deficit will increase.82. (61%) If the public’s desire to hold money as currency increases, what will theimpact be on the banking system?a. Banks would be more able to reduce unemployment.b. Banks would be more able to decrease AS.c. Banks would be less able to decrease AS.d. Banks would be more able to expand credit.e. Banks would be less able to expand credit
24 from a new customer. The bank now has excess reserves equal to 83. (86%) Which of the combinations is most likely to cure a severe recession?Open-Market Operations Taxes Gov. Spendinga. Buy securities Increase Decreaseb. Buy securities Decrease Increasec. Buy securities Decrease Decreased. Sell securities Decrease Decreasee. Sell securities Increase Increase84. (61%) The demand for money increases when national income increases becausea. spending on goods and services increases d. the MS increasesb. interest rates increase e. the budget deficit increasesc. the public becomes more optimistic about the future85. (76%) Suppose the RR is 20% and a single bank with no ER receives a $100 DDfrom a new customer. The bank now has excess reserves equal toa. $ b. $ c. $ d. $ e. $50086. (45%) Which of the following is most likely to increase if the public decides toincrease its holding of currency?a. Interest rate d. Employmentb. The price level e. The reserve requirementc. Disposable personal income87. (47%) During a mild recession, if policymakers want to reduce unemployment byincreasing investment, which of the following policies would be most appropriate?a. Equal increases in government expenditure and taxesb. An increase in government expenditure onlyc. An increase in transfer paymentsd. An increase in the reserve requiremente. Purchase of government securities by the Fed
25 most likely result in a decrease in AD? 88. (73%) Which of the following monetary and fiscal policy combinations wouldmost likely result in a decrease in AD?Discount Rate Open-Market Operations Gov. Spendinga. Lower Buy bonds Increaseb. Lower Buy bonds Decreasec. Raise Sell bonds Increased. Raise Buy bonds Increasee. Raise Sell bonds Decrease89. (35%) Under which of the following circumstances would increasing the MS bemost effective in increasing real GDP?Interest Rates Employment Business Optimisma. High Full Highb. High Less than full Highc. Low Full Highd. Low Full Lowe. Low Less than full Low90. (57%) According to both Monetarists and Keynesians, which of the followinghappens when the Fed reduces the discount rate?a. The demand for money decreases and market interest rates decrease.b. The demand for money increases and market interest rates increase.c. The supply of money increases and market interest rates decrease.d. The supply of money increases and market interest rates increase.e. Both the demand for money and the MS increase and market interest rates increase.91. (79%) All of the following are components of the MS in the U.S. EXCEPTa. paper money b. gold bullion c. checkable deposits d. coins e. demand deposits
26 and the banking system is fully loaned-up, then the RR must be 92. (77%) If a banking system’s reserves (TR) are $100 billion, DD are $500 billion,and the banking system is fully loaned-up, then the RR must bea. 10% b. 12.5% c. 16.6% d. 20% e. 25%93. (58%) Which of the following would increase the value of the ME?a. an increase in government expenditureb. An increase in exportsc. a decrease in government unemployment benefitsd. a decrease in the MPCe. a decrease in the MPS94. (76%) According to the monetarists, inflation is most often the result ofa. high federal tax ratesb. increased production of capital goodsc. decreased production of capital goodsd. an excessive growth of the money supplye. upward shifts in the consumption function95. (67%) What would occur if the international value of the U.S. dollar decreased?a. U.S. exports would rise.b. More gold would flow into the U.S.c. U.S. demand for foreign currencies would increase.d. The U.S. trade deficit would increase.e. Americans would pay less for foreign goods.96. (48%) According to the classical model, an increase in the MS causes an increase in whichI. The price level II. Nominal Gross Domestic Product III. Nominal wagesa. I only b. II only c. III only d. II and III only e. I, II, and III
27 fiscal policy changes, it should 97. (47%) If the Fed undertakes a policy to reduce interest rates, international capitalflows (financial capital like CDs & bonds) will be affected in which of the following ways?a. Long-run capital outflows from the U.S. will decrease.b. Long-run capital inflows to the U.S. will increase.c. Short-run capital outflows from the U.S. will decrease.d. Short-run capital inflows to the U.S. will decrease.e. Short-run capital inflows to the U.S. will not change.98. (73%) If the Fed wishes to use monetary policy to reinforce Congress’fiscal policy changes, it shoulda. increase the MS when government spending is increasedb. increase the MS when government spending is decreasedc. decrease the Ms when government spending is increasedd. increase interest rates when government spending is increasede. decrease interest rates when government spending is decreasedEconomic Schools of Thought99. (53%) According to the monetarists, which is true of expansionary fiscal policy?a. It will cause interest rates to rise and crowd out private investment spending.b. It should not be used so long as there is a national debt.c. It should be used only when resources are unemployed and the inflation rate is low.d. It will decrease aggregate (total) income.The Debt and the Deficit100. (71%) Which of the following will occur if the federal government runs a budget deficit.a. The expenditure multiplier will increase.b. The size of the national debt will increase.c. The economy’s output will decrease.d. State governments will run a budget surplus to offset the federal deficit.e. Interest rates will tend to decline.