Question 1

The money supply in an economy declines when, other things equal, _____.
A) government spending exceeds borrowing
B) government borrowing exceeds tax revenues and there is a deficit
C) government borrowing exceeds the government deficit
D) government spending exceeds tax revenues
E) government spending exceeds borrowing and there is a surplus

Accepted Answer

When government borrowing exceeds the government deficit, it implies that the government is borrowing more than it needs to cover its deficit, potentially leading to a reduction in the money supply as funds are withdrawn from the economy to finance the excess borrowing.

Question 2

The change in the money supply in an economy is measured as:
A) the difference between the government deficit and government borrowing.
B) the sum of a change in high-powered money and the change in tax revenues.
C) the difference between government borrowing and government spending.
D) the ratio of the change in excess reserves to the deposit expansion multiplier.
E) the change in the government budget deficit.

Accepted Answer

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

Question 3

When the money supply increases by $5 billion, tax revenues are $10 billion, and government borrowing is $30 billion, government spending must equal:
A) $10 billion.
B) $15 billion.
C) $20 billion.
D) $35 billion.
E) $45 billion.

Accepted Answer

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

Question 4

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:
A) reduce the money supply by $52 billion.
B) reduce the money supply by $35 billion.
C) increase the money supply by $17 billion.
D) increase the money supply by $35 billion.
E) increase the money supply by $18 billion.

Accepted Answer

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

Question 5

The money supply in an economy increases when, other things equal, _____.
A) the government surplus rises
B) the amount of government borrowing rises
C) tax revenues increase
D) government spending increases
E) the government deficit falls

Accepted Answer

When government spending increases, it injects more money into the economy, leading to an increase in the money supply.

Question 6

Government spending can be financed by all of the following, except:
A) personal income taxes.
B) investment spending.
C) government borrowing.
D) money creation.
E) excise taxes.

Accepted Answer

Investment spending refers to the spending done by businesses or individuals for investment purposes and does not directly finance government spending. The other options, personal income taxes, government borrowing, money creation, and excise taxes, are all sources of financing for government spending.

Question 7

In the presence of Regulation Q, when interest rates would rise, _____.
A) the transaction demand for money in the economy would increase
B) people would invest in the bond markets
C) the economy would grow faster
D) people would withdraw money from banks seeking higher interest rates elsewhere
E) the U.S. dollar would depreciate

Accepted Answer

Regulation Q placed a ceiling on the interest rates that banks could pay on deposits, which discouraged people from withdrawing their money seeking higher interest rates elsewhere. Therefore, if interest rates would rise, people would have an increased incentive to withdraw their money from banks to invest in higher-yielding instruments such as bonds or seek higher interest rates elsewhere.

Question 8

Which of the following is most likely to have contributed to better inventory management?
A) Stability in the market demand
B) Stability in the average price level
C) Perfect forecasting by the firms
D) Reduced variability in the input costs
E) Improvements in information technology and communication

Accepted Answer

Improvements in information technology and communication have made inventory management more efficient, accurate, and real-time. It has enabled better tracking of inventory levels, demand patterns, and supply chain movements, resulting in reduced stockouts, overstocking, and obsolescence. While stability in market demand and price level, perfect forecasting, and reduced variability in input costs are all desirable, they may not always be achievable or sustainable in the dynamic business environment.

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):
A) increase in the average price level and a decrease in real GDP.
B) increase in the average price level and no change in real GDP.
C) increase in the average price level and an increase in real GDP.
D) decrease in the average price level and an increase in real GDP.
E) decrease in the average price level and a decrease in real GDP.

Accepted Answer

The destruction of factories would lead to a decrease in the supply of goods and services, leading to a decrease in real GDP. However, the demand for the remaining goods and services would remain unchanged, leading to an increase in the average price level due to scarcity. Therefore, the economy would experience a decrease in real GDP and an increase in the average price level, which is represented by choice A.

Question 10

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?
A) $40 billion
B) $132 billion
C) $18 billion
D) $208 billion
E) $78 billion

Accepted Answer

The fiscal deficit is the difference between the government's expenditures and its tax revenues. If the government's fiscal deficit is $78 billion, it means the government's expenditures exceed its tax revenues by this amount. The change in the money supply would be equivalent to the amount of new money the government needs to borrow to finance this deficit, which is $78 billion. The specific figures for government borrowing and tax revenue provided in the question are not directly relevant to calculating the change in the money supply due to the fiscal deficit.

Question 11

A sudden technological breakthrough in an economy would:
A) have no impact on real GDP.
B) cause aggregate demand to fall.
C) lower the natural rate of unemployment.
D) increase the price level.
E) cause aggregate supply to rise.

Accepted Answer

A sudden technological breakthrough would increase productivity and reduce production costs, causing aggregate supply to rise. This would lead to a shift of the AS curve to the right, resulting in lower prices and higher real GDP.

Question 12

Monetary reform is a new monetary policy that includes:
A) the introduction of a new unit of currency.
B) a reduction in borrowing.
C) an increase in government spending.
D) the issuing of more currency.
E) an increase in taxes.

Accepted Answer

Monetary reform includes introducing a new unit of currency, such as in the case of countries switching from their previous currency to the euro. The other options listed, such as a reduction in borrowing, increase in government spending, issuing more currency, or increase in taxes, are not necessarily part of a monetary reform policy.

Question 13

In the 1980s, U.S. economists acknowledged that it was not possible to exploit the trade-off suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:
A) more volatility in real output.
B) less volatility in real output.
C) complete removal of unemployment.
D) more volatility in the price level.
E) short business cycles.

Accepted Answer

The realization that the trade-off suggested by the Philips curve was not possible led to more stable macroeconomic policy, which in turn contributed to less volatility in real output.

Question 14

Identify the correct statement.
A) The removal of financial market regulations has lowered the probability of a financial crisis to zero.
B) Investment in residential housing in the U.S. was less volatile during the era prior to the removal of Regulation Q.
C) Investment in residential housing in the U.S. was more volatile after the removal of Regulation Q.
D) The removal of financial market regulations lowered output volatility.
E) The removal of financial market regulations increased variability in consumer spending.

Accepted Answer

The answer of Identify the correct statement.
A) The removal of...

Question 15

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?
A) $120 million
B) $240 million
C) $360 million
D) $480 million
E) $600 million

Accepted Answer

The change in the money supply in the economy equals the government borrowing, which is $120 million. The fiscal deficit does not directly indicate the change in money supply; it's the borrowing to finance the deficit that affects the money supply.

Question 16

Which of the following shifts the aggregate supply curve to the left?
A) An improvement in computer technology
B) A war that forces people to ration their food and their use of energy
C) An increase in real wage rates
D) Discovery of a new oil field
E) Lower oil prices in the world market

Accepted Answer

An increase in real wage rates would increase the cost of production for firms, leading to a decrease in profits and a decrease in aggregate supply.

Question 17

Hyperinflation in developing countries is typically the result of:
A) low interest rates.
B) an economic recession.
C) high income tax rates.
D) large government fiscal deficits.
E) large trade deficits.

Accepted Answer

Hyperinflation in developing countries is typically the result of large government fiscal deficits. When governments spend more money than they collect in taxes, they may resort to printing more money to cover the shortfall. This increased money supply can lead to a decrease in the value of the currency, resulting in hyperinflation.

Question 18

Which of the following factors have not contributed to the "Great Moderation" of real GDP in the U.S. over the past 20 years?
A) Better inventory management
B) Better macroeconomic policy
C) Greater availability of financial products for lending and borrowing
D) Imposition of a ceiling on interest rates
E) Smaller real shocks

Accepted Answer

Imposition of a ceiling on interest rates would likely constrain the ability of monetary policy to respond to shocks and stabilize the economy, which could potentially contribute to increased volatility rather than the "Great Moderation" of real GDP.

Question 19

To some economists, the "Great moderation" means:
A) a small change in real wages.
B) a low inflation rate.
C) a low unemployment rate.
D) low output growth variability.
E) low money supply growth.

Accepted Answer

The "Great moderation" refers to a period of reduced economic volatility in the United States from the mid-1980s to the mid-2000s, marked by a reduction in the variability of output growth. This means that option D, low output growth variability, is the best choice. While low inflation and unemployment rates may also be part of the "Great moderation," they are not the defining characteristic.

Question 20

A recessionary real shock will:
A) shift the aggregate demand curve to the left and reduce real GDP.
B) shift the aggregate demand curve to the right and increase real GDP.
C) shift the aggregate supply curve to the left and increase real GDP.
D) shift the aggregate supply curve to the left and reduce real GDP.
E) shift the aggregate supply curve to the right and increase real GDP.

Accepted Answer

A recessionary real shock will reduce the long-run potential output of an economy by decreasing the availability or productivity of an important resource or input, such as oil, technology, or labor skills. This shift in the aggregate supply curve to the left results in higher input costs, lower output levels, and higher prices. Therefore, real GDP will be reduced while the price level will tend to rise, leading to stagflation. The aggregate demand curve may also shift, depending on the extent to which households and firms adjust their spending behavior in response to the shock, but this is not the primary cause of the recessionary real shock.

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

The money supply in an economy declines when, other things equal, _____.

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

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

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:

The money supply in an economy increases when, other things equal, _____.

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

In the presence of Regulation Q, when interest rates would rise, _____.

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

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) :

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?

A sudden technological breakthrough in an economy would:

Monetary reform is a new monetary policy that includes:

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

Identify the correct statement.

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?

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

Hyperinflation in developing countries is typically the result of:

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

To some economists, the "Great moderation" means:

A recessionary real shock will: