(1) Fiscal policy refers to the idea that aggregate demand is changed by changes

Question

(1) Fiscal policy refers to the idea that aggregate demand is changed by changes in

the money supply

government spending and taxes

trade policy

all of the above are correct

(2) An increase in government spending initially and primarily shifts

aggregate demand right

aggregate demand left

aggregate supply right

neither aggregate demand nor aggregate supply

(3) Suppose that the required reserve ratio is 5 percent and that a bank has $1,000 in deposits. Its required reserves are

$5

$50

$95

$950

(4) Suppose a bank has a 10 percent reserve ratio, $5,000 in deposits, and it loans out all it can given the reserve ratio

it has $50 in reserves and $4,950 in loans

it has $500 in reserves and $4,500 in loans

it has $555 in reserves and $4,445 in loans

none of the above is correct

(5) If the Fed sells $50 billion of securities to banks and RRR = 0.1, money supply will

Increase by $500 billion

Decrease by $500 billion

Increase by $50 billion

Decrease by $50 billion

(6) Let P = 200, Y = 10 and M = 400. Velocity of money is

V = 2

V = 3

V = 4

V = 5

(7) When the economy grows at the rate of 3% a year, a 7% growth in money supply would result in a

10% inflation

10% deflation

4% inflation

4% deflation

(8) Let the amount of currency and coins = $0.5 trillion, demand deposits = $0.3, travelers checks = $0.2 trillion, saving deposits = $0.5 trillion, small denomination time deposits = $6 trillion and mutual fund deposits = $2 trillion. Narrow measure of money supply is

M1 = $0.5 trillion

M1 = $0.8 trillion

M1 = $1 trillion

M1 = $1.5 trillion

(9) Let M1 = $1 trillion, saving deposits = $0.5 trillion, small denomination time deposits = $6 trillion and mutual fund deposits = $2 trillion. Broad measure of money supply is

M2 = $7.5 trillion

M2 = $8.5 trillion

M2 = $9.5 trillion

M2 = $10.5 trillion

(10) An economy can close a expansionary gap even without government macroeconomic policy by

Shifting AD to the right in the long run

Shifting AD to the left in the short run

Shifting SRAS to the right in the long run

Shifting SRAS to the left in the long run

(11) Macroeconomic policy affects the economy by

Shifting LRAS in the long run

Shifting LRAS in the short run

Shifting AD in the long run

Shifting AD in the short run

(12) An economy can close a contractionary gap even without government macroeconomic policy by

Shifting AD to the right in the long run

Shifting AD to the left in the short run

Shifting SRAS to the right in the long run

Shifting SRAS to the left in the short run

(13) An economy with an expansionary gap experiences

Cyclical unemployment and lower than expected inflation

Lower than natural rate of unemployment and lower than expected inflation

Cyclical unemployment and higher than expected inflation

Lower than natural rate of unemployment and higher than expected inflation

A.

the money supply

B.

government spending and taxes

C.

trade policy

D.

all of the above are correct

Explanation / Answer

1 All of teh above are correct

2 AD to the right

3 $50

4 it has $500 reserves and $4500 in loans

5 increase by $50 billion

6 V=2

7 4% inflation

8 M1= 0.8 trillion

9 M2= 7.5 trillion

10 shift AD to the right in long run

11 shifting AD in long run

12 Shifting AD to the left in short run

13 Cyclical unemployment and lower than expected inflation.

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