Suppose the consumer price index (CPI) stands at 250 this year. If the inflation rate is
10 percent, then next year’s CPI will equal:
a. 250.
b. 260.
c. 275.
d. 500.
Assume that Paris First National Bank is a thriving bank with deposits of $20 million. If
the required reserve ratio is 20 percent and the bank is fully loaned out, the bank will
keep what amount of required reserves?
a. $2 million.
b. $4 million.
c. $10 million.
d. $16 million.
e. $20 million.
Exhibit 8-11 Consumption function
In Exhibit 8-11, which of the
following could cause the movement from C1 to C2?
a. Higher wealth.
b. Higher interest rates.
c. Higher taxes.
d. A technological breakthrough.
e. Expectations of future economic growth.
The unemployment compensation program:
a. makes recessions more severe.
b. makes recession less severe.
c. makes recessions more severe and inflationary episodes less severe.
d. makes recessions less severe and inflationary episodes more severe.
e. has no effect on the severity of recessions and inflationary episodes.
An increase in government expenditures by $100 (unmatched by an increase in taxes)
would, if the MPC = 0.90, result in an increase in real GDP by:
a. $1,000.
b. $9,000.
c. $900.
d. $190.
e. inadequate information is given.
An individual bank can lend out at most its:
a. actual reserves.
b. fractional reserves.
c. legal reserves.
d. checkable deposits.
e. excess reserves.
Exhibit 16-1 Money market demand and supply curves
Beginning from an equilibrium at E1 in
Exhibit 16-1, a decrease in the money supply from $150 billion to $100 billion causes
people to:
a. sell bonds and drive the price of bonds down.
b. sell bonds and drive the price of bonds up.
c. buy bonds and drive the price of bonds down.
d. buy bonds and drive the price of bonds up.
If the demand for a good increases when the price of another good increases, then these
goods are:
a. complementary in consumption.
b. complementary in production.
c. substitute in production.
d. substitute in consumption.
e. neither substitutes nor complementary.
An inflationary gap is the amount by which aggregate expenditures ____ the amount
required to achieve full-employment equilibrium GDP.
a. exceed
b. equal
c. fall short of
d. are greater than
If the Fed buys $10 million dollars in government securities, and the required reserve
ratio is 20 percent, the banking system is able to expand the money supply by:
a. $10 million.
b. $8 million.
c. $2 million.
d. $40 million.
e. $50 million.
Exhibit 8-9 Consumption function
In Exhibit 8-9, the level of
autonomous consumption is:
a. 0.
b. $25.
c. $50.
d. $75.
e. $100.
Which of the following events would reduce the size of the “real-world” money
multiplier?
a. Banks hold more excess reserves.
b. Households hold less currency.
c. The Fed increases the discount rate.
d. The Fed reduces the required reserve ratio.
If the price of coffee decreases, the demand curve for tea (a substitute good) will:
a. remain unchanged.
b. shift to the right.
c. shift to the left.
d. do none of these
Exhibit 18-6 Dollars per British pound Quantity
DemandedDollars
per PoundQuantity
Supplied
200 5 600
240 4 480
300 3 410
360 2 360
390 1 330 In Exhibit 18-6, the exchange rate will have no tendency to change when it is
equal to:
a. 4.
b. 2.
c. 5.
d. 1.
e. 3.
Keynesians:
a. accept the countercyclical policy of doing nothing, that is, allowing market forces to
work.
b. believe that the level of aggregate demand in the 1930s was sufficient to generate full
employment.
c. accept the fact that policymakers should eliminate inflation first before focusing on
unemployment.
d. focus on increasing aggregate demand in order to stimulate the economy.
e. were prepared for the events that beset our economy in the 1970s and 1980s.
Which of the following is a public good?
a. Air traffic control.
b. National defense.
c. Clean air.
d. All of these.
When M1 is expanded to M2, the money supply:
a. almost doubles.
b. more than triples.
c. goes up tenfold in size.
d. changes very little.
e. goes up by 50 percent.