Econ 2012 Section 005 Principles of Macroeconomics, Final Exam (December 14, 1998), Fall 1998
Instructor: Vijaya Sharma, University of Colorado at Denver
Instruction:
This test has 40 multiple choice questions. Each question carries equal weight. Use the separately provided answer sheet to circle the correct choices.
MULTIPLE CHOICE QUESTIONS
1. Controlling the money supply to achieve desired macroeconomic goals is called
a. monetary policy.
b. cyclical policy.
c. fiscal policy.
d. industrial policy.
2. When the federal government is running a budget deficit, then
a. government revenues exceed government expenditures.
b. government expenditures exceed government revenues.
c. the economy must be in an economic boom.
d. the government will pay off the national debt.
3. The Federal Reserve's monetary policy tool is
a. the discount rate.
b. the reserve requirements.
c. open market operations.
d. all of the above.
4. A reserve requirement of 25 percent implies a money multiplier of
a. 4.
b. 5.
c. 20.
d. 25.
5. Money is
a. whatever is generally accepted in exchange for goods and services.
b. an object to be consumed.
c. a highly illiquid asset.
d. widely used in a barter economy.
6. In the United States, the money supply (M1) consists of
a. currency and coins only.
b. coins, currency, checkable deposits, and traveler's checks.
c. currency, coins, checkable deposits, and savings deposits.
d. government bonds, currency, checkable deposits, and traveler's checks.
7. Which of the following would cause the money supply in the United States to expand?
a. an increase in reserve requirements
b. an increase in the discount rate
c. a purchase of stock and bonds by the Federal Reserve
d. a sale of stock and bonds by the Federal Reserve
8. Open market operations describe the
a. loan-making activities of commercial banks.
b. effect of expansionary monetary policy on interest rates.
c. operation of competitive markets in the banking industry as the result of
deregulation.
d. buying and selling of stocks and bonds by the Federal Reserve.
9. The demand curve for money
a. shows the amount of money balances that individuals and businesses wish to hold
at various levels of private investment.
b. reflects the open market operations policy of the Federal Reserve.
c. shows the amount of money that individuals and businesses wish to hold at
various nominal interest rates.
d. indicates the amount that consumers wish to borrow at a given interest rate.
10. The Phillips curve depicts the relationship between
a. change in the money supply and change in unemployment.
b. wage rates and aggregate demand.
c. the equilibrium level of income and the employment rate.
d. inflation and unemployment.
11. What does a long-run vertical Phillips curve imply?
a. In the long run the rate of unemployment will converge toward zero.
b. Higher inflation does not permanently reduce the rate of unemployment.
c. Higher inflation increases the rate of unemployment.
d. Higher inflation lowers the rate of unemployment.
12. If the exchange rate of the German mark goes from 60 cents to 75 cents, then the mark has
a. appreciated and Germans will find U.S. goods cheaper.
b. appreciated and Germans will find U.S. goods more expensive.
c. depreciated and Germans will find U.S. goods cheaper.
d. depreciated and Germans will find U.S. goods more expensive.
13. If income in the United States increases, then
a. imports will increase and the U.S. dollar will appreciate.
b. imports will increase and the U.S. dollar will depreciate.
c. imports will decrease and the U.S. dollar will appreciate.
d. imports will decrease and the U.S. dollar will depreciate.
14. Assuming a 10 percent legal reserve requirement, a new deposit of $1,000 in a commercial bank will
a. increase money supply by $1,000.
b. decrease money supply by $1,000.
c. increase money supply by $10,000.
d. decrease money supply by $10,000.
15. Other things constant, which of the following will most likely cause the U.S. dollar to appreciate?
a. An increase in U.S. interest rate.
b. An increase in foreign interest rate.
c. An increase in U.S. income.
d. An increase in U.S. inflation.
16. Excess reserves of banks equal
a. actual reserves minus required reserves.
b. actual reserves minus demand deposits.
c. assets minus the liabilities of the banks.
d. required reserves minus demand deposits.
17. Fiat money is money that is backed necessarily by
a. gold.
b. silver.
c. nothing.
d. cigarette sticks.
18. The equation of exchange (quantity theory of money) states that
a. money supply multiplied by nominal GDP equals velocity.
b. money supply multiplied by velocity equals nominal GDP.
c. money supply divided by velocity equals nominal GDP.
d. money supply multiplied by velocity equals real GDP.
a. prices
b. real income
c. velocity
d. employment
a. temporarily reduce the natural rate of unemployment.
b. temporarily reduce actual unemployment.
c. temporarily increase actual unemployment.
d. not affect actual unemployment.
a. increase output and employment.
b. reduce inflation.
c. reduce output.
d. increase inflation but exert almost no impact on employment.
a. Keynesian view.
b. supply-side view.
c. rational expectations view.
d. 1960 view of the Phillips curve.
23. If the prices of goods and services increase, the value of money (its purchasing power)
a. increases.
b. decreases.
c. stays the same.
d. can either increase or decrease.
a. horizontal.
b. vertical.
c. also downward sloping.
d. upward sloping.
25. Policy A: A balanced federal budget
Policy B: Expansionary monetary policy and a budget deficit in response to a recession
a. Policy A is an activist policy, Policy B a nonactivist policy.
b. Policy A is a nonactivist policy, Policy B an activist policy.
c. Both are nonactivist policies.
d. Both are activist policies.
26. Which of the following macropolicy rules has been long championed by monetarists?
a. the use of expansionary monetary policy if prices are rising and restrictive
monetary policy if prices are falling
b. the use of expansionary monetary policy if prices are falling and restrictive
monetary policy if prices are rising
c. the use of expansionary monetary and fiscal policy if unemployment is falling
and restrictive monetary and fiscal policy if unemployment is rising
d. the steady expansion of the money supply at an annual rate that approximates
the long-run growth of the economy, irrespective of the current state of economy
27. The external debt is that part of the national debt held by
a. private citizens.
b. foreign investors.
c. U.S. citizens living abroad.
d. U.S. companies with foreign assets.
28. Which of the following is true?
a. A budget deficit will reduce the national debt.
b. A budget deficit will increase the national debt.
c. A balanced budget will increase the national debt.
d. A budget surplus will increase the national debt.
29. When budget deficit is financed by borrowing, future generations will
a. inherit a higher tax liability without additional interest income.
b. inherit neither higher taxes nor additional interest income.
c. inherit both higher taxes and additional interest income.
d. receive lower interest income and a lower tax liability.
30. Public choice theory indicates that budget deficits
a. are a surprising occurrence since each legislator has a strong incentive to
favor high taxes rather than additional borrowing.
b. are a natural outgrowth of the ordinary political process since borrowing
allows politicians to supply voters with immediate benefits without having
to impose an equal, visible tax on the voter-taxpayer.
c. reduce the opportunity cost of government and thereby enhance the welfare of
future generations.
d. stimulate both real output and employment and thereby promote economic growth.
31. Which of the following is an argument against a constitutional amendment to balance the budget?
a. A balanced-budget amendment would reduce the effectiveness of monetary policy
as a stabilization tool.
b. A balanced-budget amendment would reduce the effectiveness of fiscal policy as
a stabilization tool.
c. A balanced-budget amendment would lead to higher taxes and thereby increase the
opportunity cost of government expenditures.
d. A balanced-budget amendment would eliminate the incentive in Congress to oppose
costly programs.
32. What is the difference between the balance of trading account and the balance of payments?
a. Only the value of goods imported and exported are included in the balance of
trading account, while the balance of payments includes the value of all payments to and receipts from foreigners.
b. The value of goods imported and exported is included in the balance of
trading account, while the balance of payments includes only capital account transactions.
c. The value of all goods, services, and unilateral transfers is included in the
balance of trading account, while the balance of payments includes both current account and capital account transactions.
d. "Balance of trading account" and "balance of payments" both describe the same
international exchange transactions.
a. implement an expansionary monetary policy.
b. implement a restrictive monetary policy.
c. reduce trade barriers on its imports.
d. tax exports and subsidize imports.
34. If a country fixes the exchange-rate value of its currency, then it will have to
a. follow a highly expansionary monetary policy in order to maintain the fixed exchange rate.
b. give up its monetary independence in order to maintain the fixed exchange rate.
c. fix its domestic interest rates in order to maintain the fixed exchange rate.
d. raise taxes in order to maintain the fixed exchange rate.
a. an increase in the real interest rate in Britain
b. higher inflation in Britain than in the United States
c. higher income growth in Britain than in the United States
d. an increase in the number of Britons vacationing in the United States
(Sorry, the figure is not available.)
36. Devaluation differs from depreciation primarily in that
a. depreciation involves a change in the price of gold in terms of a nation's
currency; devaluation does not.
b. depreciation applies to imports, whereas devaluation pertains only to exports.
c. depreciation applies to exports, whereas devaluation pertains only to imports.
d. devaluation is an official government act under a system of fixed exchange
rates, whereas depreciation may occur under a system of flexible exchange rates.
a. the purchasing power of money rises.
b. the nominal interest rate increases.
c. the price of goods and services falls.
d. consumer income expands.
a. rational expectations hypothesis.
b. adaptive expectations hypothesis.
c. permanent income hypothesis.
d. Phillips curve theory.
a. the economy is inherently unstable and that its self-correcting mechanism works slowly and ineffectually.
b. the economy is inherently unstable and that policy makers guided by forecasting models and economic indicators are perfectly capable of following a countercyclical macroeconomic policy.
c. that left to their own discretion, policy makers are likely to make mistakes that increase economic instability.
d. balanced budget amendment and such other inflexible rules would prevent policy makers from responding to unanticipated shocks in a manner that would promote economic stability.
a. required reserves.
b. borrowed reserves.
c. actual reserves.
d. excess reserves.
ANSWER KEY