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Exercise 4 New

The document contains a series of multiple-choice questions related to the economics of money and banking, focusing on concepts such as open-market operations, the IS and LM curves, aggregate demand and supply, and the Phillips curve. Each question tests understanding of how various economic policies and changes affect monetary supply, investment, employment, and inflation. The questions are designed to assess knowledge of fundamental economic principles and their implications in real-world scenarios.

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12 views5 pages

Exercise 4 New

The document contains a series of multiple-choice questions related to the economics of money and banking, focusing on concepts such as open-market operations, the IS and LM curves, aggregate demand and supply, and the Phillips curve. Each question tests understanding of how various economic policies and changes affect monetary supply, investment, employment, and inflation. The questions are designed to assess knowledge of fundamental economic principles and their implications in real-world scenarios.

Uploaded by

lian74274
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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The Economics of money and banking

Exercise 4
Question 1
When conducting an open-market purchase, the Fed

A) buys government bonds, and in so doing increases the money supply.


B) buys government bonds, and in so doing decreases the money supply.
C) sells government bonds, and in so doing increases the money supply.
D) sells government bonds, and in so doing decreases the money supply.

Question 2
Monetary policy affects employment

A) only in the long run.


B) only in the short run.
C) in both the long run and the short run.
D) in neither the long run nor the short run.

Question 3
The negative relation between investment spending and the interest rate is what gives the
________ curve its ________ slope.

A) IS; upward
B) IS; downward
C) LM; downward
D) LM; upward

Question 4
Points on the IS curve satisfy ________ market equilibrium.

A) money
B) goods
C) stock
D) bond

Question 5
Other things equal, a decrease in autonomous consumption shifts the ________ curve to the
________.

A) IS; right
B) IS; left
C) LM; left
D) LM; right
Question 6
A decline in taxes ________ consumer expenditure and shifts the ________ curve to the
________, everything else held constant.

A) raises; LM; right


B) lowers; IS; left
C) raises; IS; right
D) lowers; LM; left

Question 7
Aggregate output is increased by a decrease in

A) autonomous consumption.
B) government spending.
C) planned investment.
D) net taxes.

Question 8
The ________ traces out the points for which total quantity of goods produced equals total
quantity of goods demanded.

A) LM curve
B) IS curve
C) consumption function
D) investment schedule

Question 9
The IS curve shifts to the left when

A) taxes increase.
B) government spending increases.
C) the money supply increases.
D) autonomous planned investment spending increases.

Question 10
Everything else held constant, an autonomous monetary policy tightening ________ aggregate
________.

A) increases; demand
B) decreases; demand
C) decreases; supply
D) increases; supply
Question 11
Everything else held constant, which of the following does NOT cause aggregate demand to
increase?

A) an increase in net exports


B) an increase in government spending
C) an increase in taxes
D) an increase in consumer optimism

Question 12
The long-run aggregate supply curve shifts to the right when there is

A) a decrease in the total amount of capital in the economy.


B) a decrease in the total amount of labor supplied in the economy.
C) a decrease in the available technology.
D) a decline in the natural rate of unemployment.

Question 13
A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

A) downward pressures on prices and wages.


B) downward pressures on prices and upward pressures on wages.
C) upward pressures on prices and downward pressures on wages.
D) upward pressures on prices and wages.

Question 14
The short-run relationship between inflation and unemployment is often called

A) the Classical Dichotomy.


B) Money Neutrality.
C) the Phillips curve.
D) the Aggregate Supply and Demand model.

Question 15
According to the Phillips curve, policymakers would reduce inflation but raise unemployment if
they

A) decreased the money supply.


B) increased government expenditures.
C) decreased taxes.
D) increased the money supply.
Question 16
The short-run Phillips curve shows the combinations of

A) unemployment and inflation that arise in the short run as aggregate demand shifts the
economy along the short-run aggregate supply curve.
B) unemployment and inflation that arise in the short run as short-run aggregate supply
shifts the economy along the aggregate demand curve.
C) real GDP and the price level that arise in the short run as short-run aggregate supply
shifts the economy along the aggregate demand curve.
D) real GDP and the price level that arise in the short run as aggregate demand shifts the
economy along the short-run aggregate supply curve.

Question 17
In 2009, Congress and President Obama approved tax cuts and increased government spending.
According to the short-run Phillips curve these policies should have

A) raised unemployment and inflation.


B) raised unemployment and reduced inflation.
C) reduced unemployment and raised inflation.
D) reduced unemployment and inflation.

Question 18
Suppose Congress decides to reduce government expenditures by reducing its purchases of
weapons systems. Which of the following would you expect to occur as a result of this change?

A) The economy will move up and to the left along the short-run Phillips Curve.
B) The economy will move down and to the right along the short-run Phillips Curve.
C) The short-run Phillips Curve will shift to the left.
D) The short-run Phillips Curve will shift to the right.

Question 19
A ________ supply shock such as a jump in energy prices causes the short-run supply curve
to shift ________.

A) negative; up
B) positive up
C) negative; down
D) positive; down

Question 20
A change in expected inflation shifts

A) the short-run Phillips curve, but not the long run Phillips curve.
B) the long-run Phillips curve, but not the long run Phillips curve.
C) neither the short-run nor the long-run Phillips curve.
D) both the short-run and long-run Phillips curve right.
Question 21
According to aggregate demand and supply analysis, the rising oil prices coupled with the
global financial crisis in 2007-2008 caused the unemployment rate to ________ and the level of
real aggregate output to ________.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 22
Suppose the economy is producing at the natural rate of output. A decrease in consumer and
business confidence will cause ________ in real GDP in the long run and ________ in inflation
in the long run, everything else held constant.

A) an increase; an increase
B) a decrease; a decrease
C) no change; an increase
D) no change; a decrease

Question 23
The expectations-augmented Phillips curve implies that as expected inflation increases, nominal
wages ________ to prevent real wages from ________.

A) fall; rising
B) fall; falling
C) rise; falling
D) rise; rising

Question 24
In each of the cases below, determine whether the IS curve shifts to the right or left, does not
shift, or is indeterminate in the direction of shift.

a. The real interest rate rises.


b. The marginal propensity to consume declines.
c. Autonomous consumption decreases.
d. The government provides tax incentives for research and development programs for firms.

Question 25
When the Federal Reserve reduces its policy interest rate, how, if at all, is the IS curve
affected? Briefly explain.

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