1. According to the Phillips Curve, in the long run inflation equals (Points : 1
ID: 2360705 • Letter: 1
Question
1. According to the Phillips Curve, in the long run inflation equals(Points : 1)
The rate of increase in government spending
The rate of increase in transfer payments
The rate of increase in government budget deficit.
The rate of increase in money supply
None of the above
2. Suppose the natural rate of unemployment is 5% and currently the rate of growth of money supply is 4%. The Fed permanently increases the rate of growth of money supply to 6%. Which of the following will be the long-run outcome?
(Points : 1)
Natural rate of unemployment = 5%, inflation rate = 5%
Natural rate of unemployment = 5%, inflation rate = 6%
Natural rate of unemployment = 5%, inflation rate lower than 6%.
Natural rate of unemployment = 5%, inflation rate higher than 6%.
None of the above.
3.
One reason some economists advocate the use of monetary policy in a recession is the belief that it is immune from the influence of special interest groups. True or false?
(Points : 1)
True
False
4. Changing the required reserve ratio is the most widely used monetary policy tool by the Fed.
(Points : 1)
True
False
5. If the required reserve ratio is 0.20 and the Fed injects $50 billion of reserves into the banking system, the money supply will increase by $250 billion.
(Points : 1)
True
False
6. Crowding-out effect is one reason why conservative economists are against using fiscal policy to stimulate the economy.
(Points : 1)
True
False
7. Even though monetary policy can be implemented quickly, it has an uncertain effect on GDP, especially in a recession. True of false.
(Points : 1)
True
False
8. Conservatives believe that the governmnet should use an expansionary fiscal policy to stimulate the aggregate demand in a recession. True or false?
(Points : 1)
True
False
9. Phillips Curve indicates that, in the short run, the government can either reduce unemployment or inflation, but not both. True or false?
(Points : 1)
True
False
10. One of the reasons the opponents of monetary policy cite against its use in a recession is that this policy is quite intrusive into private sector decisions. True or false?
(Points : 1)
True
False
11. One of the disadvantages of monetary policy is that it has an uncertain effect on GDP. True or false?
(Points : 1)
True
False
12. The three tools of monetary policy are: open-market operations, discount loans, and monetizing the debt.
(Points : 1)
True
False
13. The three ways the government can finance its expenditure are: raising taxes, borrowing, and monetizing the debt.
(Points : 1)
True
False
14. The Phillips Curve indicates that in the long run the government can reduce the unemployment rate below the natural rate of unemployment.
(Points : 1)
True
False
15. Suppose there is a one-time increase in the government spending of $100 billion. The effect of this policy would be a reduction in unemployment rate and an increase in inflation rate in the long run.
(Points : 1)
True
False
16. If OPEC increases the price of oil, the effect will be a higher inflation rate in both the short run and the long run.
(Points : 1)
True
False
17. In the short run, if the government increases its spending, the inflation rate will increase but the unemployment rate will decrease.
(Points : 1)
True
False
18. If the expenditure multiplier is 5 and the government increases spending by 100 billion units, the real GDP will increase by 25 billion units. True or false?
(Points : 1)
True
False
19. The "crowding-out effect" refers to the argument that if the Fed increases the money supply growth rate, the resulting inflation will drive the low-income households out of the market. True or false?
(Points : 1)
True
False
20. In the absence of any government intervention, a recession will come to an end. This is called the self-correcting mechanism.
(Points : 1)
True
False
21. Suppose that the expenditure multiplier is 4 and the government increases spending by 20 billion units. As a result the real GDP will increase by 80 billion units.
(Points : 1)
True
False
22. Open market operations is the least widely used monetary policy tool by the Fed.
(Points : 1)
True
False
23. The Fed conducts an open market sale with an intent to reduce the interest rate.
(Points : 1)
True
False
24. If the Fed conducts an open market purchase, the AD function will shift to the left.
(Points : 1)
True
False
25. The main problem with the discount rate as a monetary policy tool is that it has an uncertain effect.
(Points : 1)
True
False
26. The problem with the required reserve ratio as a monetary policy tool is that it is not very powerful in changing the money supply.
(Points : 1)
True
False
27. One reason governments want to cut taxes for the middle-income households as an expansionary fiscal policy is that, generally, tax cuts do not significantly affect low-income households’ disposable incomes and high-income households’ consumption. True or false?
(Points : 1)
True
False
28. If, all else the same, the interest rates increase, the aggregate demand for goods and services will increase. True or false?
(Points : 1)
True
False
29.
What is the definition of demand for money?
(Points : 1)
The amount of money people are willing and able to hold.
The amount of money people are willing to hold.
The amount of money people are willing to borrow.
The amount of money people actually hold.
None of the above.
30.
Which of the following is included in 2010 GDP?
(Points : 1)
The value of the old 2001 Chevy you bought from me.
The value of the used book you bought from bookstore in 2010.
The government bought some new books for the students in public schools.
The value of the time you spent fixing your car.
None of the above.
31. The general price level in 2009 is P = 120 and in 2010 it increases to P =126. The rate of inflation between these two years equals. (Points : 1)
2%
3%
5%
6%
7%
32.
What does Phillips Curve show?
(Points : 1)
It shows a positive relationship between the rate of growth of money supply and the rate of inflation.
It shows a positive relationship between the rate unemployment and the rate of inflation.
It shows a positive relationship between the rate unemployment and the rate of change of Cambridge k.
It shows a negative relationship between the rate unemployment and the rate of inflation.
None of the above
33.
Which of the following is most accurate about the short-run relationship between the unemployment and inflation rates?
(Points : 1)
In the case of a supply shock, they will both move in the same direction.
In the case of a supply shock, they will move opposite directions.
In the case of a supply shock, unemployment rate will change but the inflation rate will remain the same.
In the case of a supply shock, inflation rate will change but the unemployment rate will remain the same.
None of the above
34.
The Phillips-Curve theory and empirical evidence indicate that in the long run:
(Points : 1)
Policymakers can reduce the rate of inflation at the cost of increasing the rate of unemployment.
Policymakers can reduce the rate of inflation without increasing the rate of unemployment.
Policymakers can reduce the rate of unemployment at the cost of increasing the rate of inflation.
Policymakers can reduce the rate of unemployment without increasing the rate of inflation.
None of the above.
35. Which classical assumption results in full-employment of labor force? (Points : 1)
Wage and price rigidity.
Crowding out effect.
expenditure Multiplier
Wage and price flexibility.
None of the above.
36. Which of the following is an expansionary demand management policy? (Points : 1)
An open market sale of bonds by the Fed.
An increase in the required reserve ratio.
A reduction in transfer payments.
An open market purchase by the Fed.
None of the above.
37. Which of the following monetary policy tools is very powerful so that the Fed almost never uses it. (Points : 1)
Open market operations
Extending discount loans to banks
Changing the required reserve ratio
Monetizing the debt
None of the above
38. Which of the following is an argument against using fiscal policy in a recession? (Points : 1)
Crowding out
Long and variable lags
The influence of special interests and lobbyists
All of the above.
None of the above.
39. If the rquired reserve ratio is 20% and the Fed injects $100 of reserves into the banking system, how much money will be potentially created in the economy? (Points : 1)
$500
$200
$1,000
$5,000
None of the above.
40. The difference between the frictional and structural unemployment is that in the case of frictional unemployment the skills of the job seekers do not match with the skill requirements of the jobs, while in the case of structural unemployment they match. (Points : 1)
True
False
Explanation / Answer
Answering only first 4
1.)in long run , inflation equals expected inflation, so inflation equals growth rate of money supply, option d
2.)option b, in long run, unemployment= natural rate
& expected Inflation equals actual inflation = 6%
3.) False , monetrmo policy gets influenced by special groups
4.) False, fed generally uses more OMO & discount rate than reserve requirements changes
5 .) True
Multiplier = 1/ RRR = .5
So increase in money supply = 50*5 = 250
6.) True
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