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Douglas
9. If the reserve ratio is 10 percent, when the Fed sells $10 million dollars of bonds, bank reserves may
a. increase by $10 million, causing the money supply to increase by up to $100 million.
b. increase by $1 million, causing the money supply to increase by up to $10 million.
c. decrease by $1 million, causing the money supply to decrease by up to $10 million.
d. decrease by $10 million, causing the money supply to decrease by up to $100 million.
10. In the United States, a cup of hot chocolate costs $5. In Australia, the same hot chocolate costs $6.5
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Australian dollars. If the exchange rate is $1.3 Australian dollars per U.S. dollar, the real exchange rate is
a. 1.69 cups of U.S. hot chocolate per cup of Australian hot chocolate
b. 59 cents.
c. 1 cup of Australian hot chocolate per cup of U.S. hot chocolate
d. 1.69 cup of Australian hot chocolate per cup of U.S. hot chocolate
The long-run aggregate supply curve shifts right if
a. the price level decreases.
b. the money supply increases.
c. technology improves.
d. All of the above are correct.
Given a nominal interest rate of 10 percent, in which case below would you earn the highest after-tax real
interest rate on a $100 bond?
a. Inflation is 4 percent; the tax rate is 30 percent.
b. Inflation is 3 percent; the tax rate is 40 percent.
c. Inflation is 5 percent; the tax rate is 10 percent.
d. The after-tax real interest rate is the same for all of the above.
The classical dichotomy and monetary neutrality state that changes in the money supply
a. affect both nominal and real variables.
b. affect neither nominal nor real variables.
c. do not affect nominal variables, but do affect real variables.
d. affect nominal variables, but not real variables.
According to liquidity preference theory, an increase in the price level shifts the
a. money demand curve right so the interest rate decreases.
b. money demand curve left so the interest rate decreases.
c. money demand curve right so the interest rate increases.
d. money demand curve left so the interest rate increases.
Which of the following would cause prices and real GDP to rise in the short run?
a. an increase in the expected price level
b. an increase in the money supply
c. a decrease in the capital stock
d. None of the above is correct.
According to classical macroeconomic theory, changes in the money supply affect
a. real GDP and the price level.
b. neither the price level nor real GDP.
c. real GDP but not the price level.
d. the price level, but not real GDP.
Which of the following is not included in aggregate demand?
a. purchases by foreigners of consumer goods produced in the United States
b. purchases of stock and bonds
c. purchases of capital goods such as equipment in a factory
d. purchases of services such as visits to the doctor
Douglas
18. In the 1970s the Fed accommodated the increase in the price of oil by increasing the money supply. It might
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sources of oil are discovered in the country, then in the short-run we would expect
a. real GDP will fall and the price level might rise, fall, or stay the same.
b. the price level will rise, and real GDP might rise, fall, or stay the same.
c. real GDP will rise and the price level might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.
33. If the current interest rate is below the Fed's target, the Fed should
a. sell bonds to increase the money supply.
b. buy bonds to increase the money supply.
c. buy bonds to decrease the money supply.
d. sell bonds to decrease the money supply.
34. Monetary neutrality implies that an increase in the quantity of money will
a. increase the nominal wage.
b. decrease the real wage.
c. increase employment.
d. None of the above.
35. The negative relationship between price and quantity demanded
a. is referred to as the law of demand.
b. applies to most goods in the economy.
c. is represented by a downward-sloping demand curve.
d. All of the above are correct.
Douglas
36. What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it
becomes more difficult to download illegally, and payments to musicians by recording companies fall?
Quantity will rise and the effect on price is ambiguous.
Price will fall and the effect on quantity is ambiguous.
Price will rise and the effect on quantity is ambiguous.
Quantity will fall and the effect on price is ambiguous.
Suppose that the government were to eliminate all taxes on dividends. According to our loanable funds
model, this would make the interest rate
a. and investment decrease.
b. increase and investment decrease.
c. and investment increase.
d. decrease and investment increase.
Which of the following is included in M1 but not in M2?
a. savings deposits
b. demand deposits
c. currency
d. all of the above are in M2.
Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge
Neons (a fuel-efficient but inferior good) to increase?
a. an increase in consumer income
b. wages of auto workers fall.
c. a decrease in consumer income
d. gas mileage of SUVs and mid-size sedans improves.
An Italian citizen opens and operates a spaghetti factory in the United States. This is Italian
a. foreign portfolio investment that increases Italian net capital outflow.
b. foreign portfolio investment that decreases Italian net capital outflow.
c. foreign direct investment that increases Italian net capital outflow.
d. foreign direct investment that decreases Italian net capital outflow.
During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the
variety of sunscreen products offered has increased. Whats the most likely explanation?
a. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
b. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
c. Sunscreen producers increased production out of concern for the publics health.
d. Government officials ordered sunscreen producers to produce more sunscreen.
Which of the following shifts short-run AS, but not long-run AS, to the right?
a. a decrease in the expected price level
b. a decrease in the actual price level
c. a decrease in the capital stock
d. an increase in the money supply
If the exchange rate changes from 115 yen per dollar to 125 yen per dollar, the dollar has
a. depreciated, which tends to increase the US trade deficit.
b. depreciated, which tends to decrease the US trade deficit.
c. appreciated, which tends to increase the US trade deficit.
d. appreciated, which tends to decrease the US trade deficit.
Which of the following typically rises during a recession?
a. garbage collection
b. automobile sales
c. unemployment
d. corporate profits
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only trade that these countries do. The net exports of Oceania are
a. $60, and Escudias NCO is -$60
b. $100, and Escudias NCO is $40
c. $140, and Escudias NCO is $140
d. None of the above is correct.
Which of the following lists two things that both increase the money supply?
a. lower the discount rate, lower the reserve requirement ratio
b. lower the discount rate, raise the reserve requirement ratio
c. raise the discount rate, lower the reserve requirement ratio
d. raise the discount rate, raise the reserve requirement ratio
Which of the following is considered human capital?
a. the amount you get paid each week to work at the library
b. any capital goods that require a human to be present to operate
c. the things you have learned this semester
d. the comfortable chair in your dorm room where you read economics texts
From 2001 to 2005 housing prices rose. If this made people feel wealthier, then it would shift
a. aggregate demand left.
b. aggregate demand right.
c. aggregate supply left.
d. aggregate supply right.
Other things the same, as the price level rises, the real value of a dollar
a. rises, and interest rates fall.
b. falls, and interest rates rise.
c. rises, and interest rates rise.
d. falls, and interest rates fall.
Which of the following does the Federal Reserve not do?
a. convert Federal Reserve Notes into gold
b. serve as a bank regulator
c. lend to banks
d. conduct monetary policy
Douglas
54. Over the last 5 years the annual U.S. inflation rate was about
a. 50 to 60 percent.
b. 0 to -1 percent.
c. 2 to 3 percent.
d. 10 to 15 percent.
55. In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot
dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in
2007. Which of the following statements is correct?
a. When 2006 is chosen as the base year, the consumer price index is 90 in 2007.
b. When 2007 is chosen as the base year, the consumer price index is 100 in 2006.
c. When 2006 is chosen as the base year, the inflation rate is 150% from 2006 to 2007.
d. When 2007 is chosen as the base year, the inflation rate is 50% from 2006 to 2007.
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ID: A
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