Question 1

To some economists, the "great moderation" means:

Accepted Answer

The "great moderation" refers to a period of lower output growth variability, meaning that there was less volatility in the economy and GDP growth was more stable. This period was said to have occurred from the mid-1980s to the mid-2000s. While low inflation and low unemployment may be related to the great moderation, they are not the defining characteristic. Similarly, low money supply growth is not necessarily indicative of the great moderation.

Question 2

Monetary reform is a new monetary policy that includes:

Accepted Answer

Monetary reform involves the introduction of a new unit of currency or a change in the existing currency system. It aims to improve the functioning of the monetary system and stabilize the economy, but it is not directly related to government spending, borrowing, or taxation. Issuing more currency without any corresponding increase in the productive capacity of the economy can lead to inflation and other economic problems.

Question 3

Government spending can be financed by all of the following, except:

Accepted Answer

Government spending can be financed through personal income taxes, government borrowing, money creation, and excise taxes. Investment spending is a component of government spending and cannot be used to finance government spending.

Question 4

A recessionary real shock will:

Accepted Answer

A recessionary real shock will cause a decrease in productivity, such as a natural disaster or a decrease in technology. This will shift the aggregate supply curve to the left, meaning that at every price level, there will be a lower level of real GDP. This results in a reduction in real GDP, as stated in option D.

Question 5

The change in the money supply in an economy is measured as:

Accepted Answer

The answer of The change in the money supply in...

Question 6

In the 1980s, U.S. economists acknowledged that, it was not possible to exploit the tradeoff suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:

Accepted Answer

The acknowledgment that the tradeoff suggested by the Philips curve was not possible led to more stable macroeconomic policies. This stability contributed to less volatility in real output.

Question 7

Identify the correct statement.

Accepted Answer

The answer of Identify the correct statement.
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Question 8

If the government fiscal deficit equals $240 million and government borrowing equals $120 million, what is the change in the money supply in the economy?

Accepted Answer

The answer of If the government fiscal deficit equals $240...

Question 9

Consider an economy in equilibrium, and assume no change in aggregate demand. An earthquake that destroys many factories across the country would result in a(n):

Accepted Answer

The destruction of many factories across the country would lead to a decrease in the supply of goods and services, resulting in a decrease in real GDP. However, the demand for goods and services remains the same, leading to an increase in the average price level due to the shortage of goods and services. Therefore, the correct answer is A, an increase in the average price level and a decrease in real GDP.

Question 10

The money supply increases when, other things equal:

Accepted Answer

When government spending increases, it injects more money into the economy, leading to an increase in the money supply. A government deficit (option E) can also lead to an increase in the money supply as it involves the government borrowing and spending more money. Options A, B, and C do not directly impact the money supply.

Question 11

When the money supply increases by $5 billion, tax revenues are $10 billion, and government borrowing is $30 billion, government spending must equal:

Accepted Answer

The answer of When the money supply increases by $5...

Question 12

Which of the following is most likely to have contributed to better inventory management?

Accepted Answer

Improvement in information technology and communication can lead to better tracking and real-time monitoring of inventory levels, which can contribute to more efficient inventory management. The other options listed may also have some impact, but not as directly or significantly as improvements in technology and communication.

Question 13

The money supply declines when, other things equal:

Accepted Answer

The answer of The money supply declines when, other things...

Question 14

Hyperinflation in developing countries is typically the result of:

Accepted Answer

Hyperinflation in developing countries is often caused by large government fiscal deficits, which occur when a government spends more money than it generates in revenue, leading to an increase in the money supply and ultimately inflation. Other factors that may contribute to hyperinflation include inadequate monetary policy, currency devaluation, and external debt. Low interest rates, an economic recession, high income tax rates, and large trade deficits, while potentially problematic in their own right, are not typically the primary drivers of hyperinflation in developing countries.

Question 15

If the government fiscal deficit equals $78 billion, government borrowing equals $38 million, and tax revenue equals $92 billion, what is the value of the change in the money supply?

Accepted Answer

The formula for change in the money supply is:
Change in Money Supply = Government Borrowing - Fiscal Deficit
Change in Money Supply = $38 million - $78 billion
Change in Money Supply = -$77.962 billion
Since the answer options are in billions, the answer is closest to option A: $40 billion. The negative sign indicates a decrease in the money supply, so the answer is -$77.962 billion, which is closest to -$40 billion. Therefore, A is the best choice.

Question 16

Which of the following shifts the aggregate supply curve to the left?

Accepted Answer

An increase in real wage rates would increase firms' costs of production, causing a leftward shift in the aggregate supply curve.

Question 17

Which of the following factors have not contributed to the "Great Moderation" of real GDP in the U.S. over the past 20 years?

Accepted Answer

The imposition of ceiling on interest rates is not a factor that contributed to the "Great Moderation" of real GDP in the U.S. over the past 20 years. In fact, the Federal Reserve has implemented a policy of gradually reducing interest rates to stimulate the economy during periods of recession.

Question 18

A sudden technological breakthrough in an economy would:

Accepted Answer

A sudden technological breakthrough would increase the productivity of firms, allowing them to produce more output with the same amount of inputs, thus increasing aggregate supply. This increase in aggregate supply leads to a decrease in the equilibrium price level and an increase in real GDP.

Question 19

Assume that taxes are constant. If the government borrows $17 billion in new funds and has a budget deficit of $35 billion, then the central bank has to:

Accepted Answer

The answer of Assume that taxes are constant. If the...

Question 20

In the presence of Regulation Q, when interest rates rise:

Accepted Answer

Regulation Q placed a ceiling on the interest rates that banks could offer on deposits, which caused people to withdraw money from banks and seek higher interest rates elsewhere when market interest rates rose. This led to a decrease in the money supply and higher market interest rates.

Quiz 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles