EXTRA Exam 2 Prep

Question 1

The present value of a given payment in the future _______ when interest rates rise.

Answer 1

decreases

Question 2

If the banking system has a required reserve ratio of 5 percent, then the money multiplier is:

Answer 2

20

Question 3

If the FED sells $7.5 million of US bonds and the reserve requirement is 25%, M1 will eventually:

Answer 3

decrease by $30 million.

Question 4

If the quantity of money demanded exceeds the quantity of money supplied, then the:

Answer 4

interest rate will increase.

Question 5

If the FED has a major policy objective to decrease unemployment, it should:

Answer 5

decrease the reserve requirement and/or conduct an open market purchase.

Question 6

Assuming a long-run Classical aggregate supply curve, a decrease in the money supply results in _______ in output and _______ in prices.

Answer 6

no change; a decrease

Question 7

Assuming a short-run Keynesian aggregate supply curve, a decrease in taxes results in _______ in output and _______ in prices.

Answer 7

a substantial increase; a slight or no increase

Question 8

If the government wants to reduce unemployment, government spending should be ________ and/or taxes should be _________.

Answer 8

increased; decreased

Question 9

If the consumption function is C = 50 + 0.75 y, where C is consumption and y is output, then the marginal propensity to consume is _______ and the Keynesian multipler is _____.

Answer 9

0.75; 4

Question 10

Let C = 100 + 0.6 y, and I = 150, where I is investment. Assume no government or foreign sectors. Then the equlibrium level of output y* equals:

Answer 10

625