Which of the following is not a tool of fiscal policy?
If the short-run aggregate supply curve has a positive slope, effective fiscal policy to correct for an expansionary gap will
reduce both the price level and real GDP
All of the following are variables that can be manipulated to affect fiscal policy except one. Which is the exception?
the interest rate
Discretionary fiscal policy is policy that
is an intentional change in taxation or government spending
Which component of aggregate expenditure is most subject to crowding out?
Open-market operations involve
the Fed's purchase and sale of government securities
The actions of the Fed
are not subject to approval by any branch of government
Which of the following is not a function of money?
to provide a double coincidence of wants
Commodity money is something
that has an intrinsic value
The U.S. dollar is a good example of __________ money and is therefore __________ by gold a commodity b representative c fiat a backed b not backed
c and b
To close a contractionary gap using fiscal policy, the government can
d. increase government spending by less than the size of the gap - To close a contractionary gap, we would need to use an expansionary policy which means we need to increase government spending.
In an economy without a government and without international transactions, aggregate expenditure at each level of income is equal to
consumption plus planned investment
The MPC is a relationship between
a change in consumption and a change in income
If the marginal propensity to consume is 4/5, the value of the simple multiplier is
When a household’s disposable income increases by $4,000, the savings increase by $1,000. The marginal propensity to save is:
The smaller the marginal propensity to save, other things constant,
the larger multiplier
The simple spending multiplier
b. is defined as 1.0 divided by the marginal propensity to save
If the multiplier is 4, a $10 billion increase in autonomous investment will cause a
c. $40 billion increase in equilibrium real GDP demanded
An increase in planned investment would shift the
a. aggregate demand curve outward
In Exhibit 11-3, the distance between Y1 and Y2 is called
a. an expansionary gap
The situation in which actual output exceeds potential output
e. creates pressure for inflation
A beneficial supply shock would shift the
e. long-run and short-run aggregate supply curves outward
Which of the following would cause the short-run aggregate supply curve to shift leftward?
c. workers opting for more leisure time and less time on the job
If consumer spending increases, other things constant, the aggregate demand curve shifts inward.
The M1 money supply is defined as
b. currency and coins held by the nonbank public, checkable deposits, and traveler's checks
The M2 money supply is defined as
a. M1 plus savings accounts, small time deposits, and money market mutual funds
In the aggregate demand-aggregate supply model, an increase in the money supply will cause in the short run a(n)
a. increase in both the price level and real GDP
If there is a decrease in the supply of money, which one of the following is most likely to happen?
c. interest rates will rise
The simple money multiplier is defined as
b. 1/required reserve ratio
If the reserve requirement ratio is 20%, the simple money multiplier is:
To increase the money supply, the Fed might
b. decrease the reserve requirement and buy bonds on the open marke
The 2008 stimulus is an example of a(n) ______ policy and the FOMC’s (the papers would just say “The Fed”) recent increase in the money supply is an example of a(n) _______ policy.
In the long run, an increase in aggregate demand
d. affects only the price level
The velocity of money is defined as
c. the average number of times per year each dollar is used to purchase final goods and services
Which of the following best expresses the benefit from international trade?
a. With trade, each country can concentrate on producing those goods and services that it produces most efficiently.
For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true concerning comparative advantage between the two countries?
d. Denmark has the comparative advantage in watches.
T or F: If a country has an absolute advantage in the production of every good, it cannot benefit from trade with other countries.
The opportunity cost of producing one car in Germany is 2,000 bushels of wheat, and the opportunity cost of producing one car in Canada is 1,200 bushels of wheat. The two countries can realize mutual gains from trade if they agree on terms of trade that are
c. greater than 1,200 bushels of wheat per car and less than 2,000 bushels of wheat per car, and Germany produces wheat
Which of the following is not a reason for international specialization?
e. the world price of a good is determined by the world supply and demand for it
Social capital is
a. the shared values and trust that promote cooperation in the economy
If on Monday €1 = $0.57 and on Tuesday €1 = $0.68, which of the following is correct regarding the Euro (€) to US dollar ($) exchange rate?
e. The Euro appreciated and the dollar depreciated
Those who simultaneously buy and sell currency to take advantage of exchange rate differences are called
Which of the following statements concerning speculators is true?
c. They hope to profit by trading a currency at a different exchange rate later.
According to the purchasing power parity theory, in the long run
e. the exchange rate between the Canadian dollar and the British pound should reflect differences in price levels between Canada and Britain
A nation's consumption possibilities frontier is
d. the same as its production possibilities frontier only if there is no international trade
Suppose the exchange rate is such that 1 U.S. dollar equals 1 euro in New York and 0.9 euros in Paris. An arbitrageur would sell euros
d. in Paris while buying them in New York
A flexible exchange rate
e. adjusts in response to market forces
The current international monetary system is
c. a system combining fixed and flexible exchange rates (managed float system)
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