Macroeconomics Final

1. The money supply includes all of the following

EXCEPT

• a. metal coins.

• b. paper currency.

• c. lines of credit accessible with credit cards.

• d. bank balances accessible with debit cards.

5. Which of the following actions by the Fed would reduce the money supply?

• a. an open-market purchase of government bonds

• b. a reduction in banks’ reserve requirements

• c. an increase in the interest rate paid on reserves

• d. a decrease in the discount rate on Fed lending

3. If the reserve ratio is ¼ and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by

• a. $90.

• b. $150.

• c. $160.

• d. $480.

5. If an economy always has inflation of 10 percent per year, which of the following costs of inflation will it NOT suffer?

• a. shoeleather costs from reduced holdings of money

• b. menu costs from more frequent price adjustment

• c. distortions from the taxation of nominal capital gains

• d. arbitrary redistributions between debtors and creditors

3. A change in the expected price level shifts

• a. the aggregate-demand curve.

• b. the short-run aggregate-supply curve, but not the long-run aggregate-supply curve.

• c. the long-run aggregate-supply curve, but not the short-run aggregate-supply curve.

• d. both the short-run and the long-run aggregate-supply curves.

1. The classical principle of monetary neutrality states that changes in the money supply do not influence ________ variables and is thought most applicable in the ________ run.

• a. nominal, short

• b. nominal, long

• c. real, short

• d. real, long

2. A sudden crash in the stock market shifts

• a. the aggregate-demand curve.

• b. the short-run aggregate-supply curve, but not the long-run aggregate-supply curve.

• c. the long-run aggregate-supply curve, but not the short-run aggregate-supply curve.

• d. both the short-run and the long-run aggregate-supply curves.

2. According to the quantity theory of money, which variable in the quantity equation is most stable over long periods of time?

• a. money

• b. velocity

• c. price level

• d. output

6. Which of the following is an example of an automatic stabilizer? When the economy goes into a recession,

• a. more people become eligible for unemployment insurance benefits.

• b. stock prices decline, particularly for firms in cyclical industries.

• c. Congress begins hearings about a possible stimulus package.

• d. the Federal Reserve changes its target for the federal funds rate.

When the economy goes into a recession, real GDP ________ and unemployment ________.

• a. rises, rises

• b. rises, falls

• c. falls, rises

• d. falls, falls