Econ 2006 Fall 06 HW: Multiple Choice Questions on Fiscal and Monetary Policy - Prof. S. I, Assignments of Introduction to Macroeconomics

Download Econ 2006 Fall 06 HW: Multiple Choice Questions on Fiscal and Monetary Policy - Prof. S. I and more Assignments Introduction to Macroeconomics in PDF only on Docsity! HW 3 Econ 2006 Fall 06 S. Islam Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Expansionary fiscal policy consists of: a. increased government purchases, increased taxes, increased transfer payments. b. decreased government purchases, decreased taxes, decreased transfer payments. c. increased government purchases, increased taxes, decreased transfer payments. d. increased government purchases, decreased taxes, increased transfer payments. ____ 2. The federal government buys $10 million worth of aircraft engines from General Motors. If the MPC is .80 what will be the impact on aggregate demand, other things being equal? a. Aggregate demand will increase $8 million. b. Aggregate demand will increase $10 million. c. Aggregate demand will increase $12.5 million. d. Aggregate demand will increase $18 million. e. Aggregate demand will increase $50 million. ____ 3. If government policy makers were worried about the inflationary potential of the economy, which of the following would not be a correct fiscal policy change? a. Increase consumption taxes. b. Increase government purchases of goods and services. c. Reduce transfer payments. d. Increase the budget deficit. ____ 4. An increase in net taxes (taxes minus transfer payments) would do which of the following in the short run? a. decrease any budget deficit or increase any budget surplus b. reduce the price level c. reduce unemployment d. reduce consumption purchases e. all of the above except c. ____ 5. If there is initially a federal budget surplus, and taxes rise, while transfer payments fall: a. AD increases and the budget surplus increases. b. AD increases and the budget surplus decreases. c. AD decreases and the budget surplus increases. d. AD decreases and the budget surplus decreases. e. there is an indeterminate effect on both AD and the budget deficit. ____ 6. Which group or groups buy U.S. public debt? a. Government agencies b. Private individuals c. Private institutions d. All of the above. ____ 7. Suppose that in a closed economy GDP is 10,000, consumption is 6,500, and taxes are 2,000. What value of Government expenditures would make national savings equal to 1000 and at that value would the government have a deficit or surplus? a. 2,500 deficit b. 2,500 surplus c. 1,000 deficit d. 1,000 surplus ____ 8. A stockholder who purchases 10 shares of priceline.com stock at $100 per share only to see the company shortly thereafter file for bankruptcy: a. can lose only the value of the initial investment, or $1,000. b. can lose only a portion of the initial investment, since bankruptcy protection guarantees that shareholders always receive some of their initial investment back. c. can lose more than $1,000 (the value of the initial investment) since stockholders are liable for all debts of the firm out of their personal assets. d. can lose nothing, since bankruptcy protection guarantees the full return of a stockholder's initial investment. ____ 9. Which of the following bond buyers did NOT buy the bond that best met their objective? a. Mia wanted a bond with a high interest rate, regardless of the risk. She purchased a junk bond. b. Anna wanted a bond that would let her best avoid taxes. She purchased a municipal bond. c. Bill wanted to purchase a bond that was unlikely to have default. He purchased a bond that Standards and Poor's rated a low credit risk. d. To reduce risk, Toby purchased a long-term bond rather than a short-term one. ____ 10. All else equal, when people become more optimistic about a company's future, the a. supply of the stock and the price will both rise. b. supply of the stock and the price will both fall. c. demand for the stock and the price will both rise. d. demand for the stock and the price will both fall. ____ 11. The primary advantage of mutual funds is that they a. always make a return that "beats the market." b. allow people with small amounts of money to diversify. c. provide customers with a medium of exchange. d. All of the above are correct. ____ 12. Which of the following best illustrates the unit of account function of money? a. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars. b. You pay for your WNBA tickets with dollars. c. You keep $10 in your backpack for emergencies. d. None of the above is correct. ____ 13. If the reserve ratio is 15 percent, an additional $1,000 of reserves will increase the money supply, to the nearest dollar, by a. $1176. b. $1275. c. $5667. d. $6667. ____ 14. Which list contains only actions that decrease the money supply? a. lower the discount rate, raise the reserve requirement ratio b. lower the discount rate, lower the reserve requirement ratio c. raise the discount rate, raise the reserve requirement ratio d. raise the discount rate, lower the reserve requirement ratio ____ 15. Which list contains only actions that decrease the money supply? a. make open market purchases, raise the reserve requirement ratio b. make open market purchases, lower the reserve requirement ratio c. make open market sales, raise the reserve requirement ratio d. make open market sales, lower the reserve requirement ratio ____ 16. In a fractional reserve banking system, an increase in reserve requirements a. increases both the money multiplier and the money supply. b. decreases both the money multiplier and the money supply. c. increases the money multiplier, but decreases the money supply.