Inflation caused by continually decreasing short-run aggregate supply is cost-pu
ID: 1105905 • Letter: I
Question
Inflation caused by continually decreasing short-run aggregate supply is cost-pull inflation. cost-push inflation. demand-pull inflation. demand-push inflation. Question 10 of 50 The short-run aggregate supply curve in modern Keynesian analysis is horizontal. vertical. upward sloping. downward sloping. Question 11 of 50 If the marginal propensity to save (MPS) is 0.1, the multiplier will be 0.1. 1. 5. 10. Question 12 of 50 A decrease in autonomous investment of $100 that occurs when the marginal propensity to save (MPS) equals 0.25 will lead to a decrease in real Gross Domestic Product (GDP) of _____ . $25 $100 $400 $800 Question 13 of 50 As real disposable income increases, we expect the average propensity to consume (APC) to always be below MPC. to increase. to decrease. to remain unchanged. Question 14 of 50 The larger the marginal propensity to consume the larger the marginal propensity to save is. the larger the multiplier is. the smaller the multiplier is. the smaller autonomous consumption is. Question 15 of 50 One divided by the marginal propensity to save (MPS) is the formula for one minus the multiplier. the inverse of the multiplier. the multiplier. autonomous consumption. Question 16 of 50 Discretionary fiscal policy is so named because it is undertaken at the order of the nation's central bank. occurs automatically as the nation's level of GDP changes. involves specific changes in taxes and government spending undertaken by Congress and the president. involves secret advice given by the Council of Economic Advisers to the president. Question 17 of 50 The balanced-budget multiplier is equal to the percentage increase in government expenditures. the reciprocal of the increase in government expenditures. the percentage increase in taxes. 1. Question 18 of 50 The proposition that an increase in the federal budget deficit caused entirely by a current tax cut has no effect on aggregate demand is called the indirect effect. interest rate effect. open-economy effect. Ricardian equivalence theorem. Question 19 of 50 Fiscal policy is defined as the design of a tax system to transfer income from the rich to the poor. the use of Congressional power to pursue social and political goals. the discretionary changing of government expenditures and/or taxes to achieve national economic goals. the use of the taxing power of the government to redistribute wealth in a socially acceptable manner. Question 20 of 50 An increase in government spending without an accompanying increase in taxes does not increase aggregate demand. would effectively eliminate an inflationary gap. causes investment spending to increase. requires additional government borrowing. Question 21 of 50 If the government spends less than what it receives in taxes during a given interval, then the result is a balanced budget. an entitlement. unrealized public debt. a government budget surplus. Question 22 of 50 A government budget surplus occurs during a budget year when tax revenues > government spending. tax revenues = government spending. tax revenues < government spending. tax revenues + government spending = personal income. Question 23 of 50 When government spending exceeds government revenues during a given period of time a budget deficit exists. a budget surplus exists. the national debt must be decreasing. Congress is obliged to raise taxes. Question 24 of 50 Government spending that changes automatically without action by Congress is a noncontrollable expenditure. national defense. payments to contractors for routing services performed. discretionary payments. Question 25 of 50 When analyzing the effects of the government budget deficit no distinction must be made between an economy where full employment exists and one where substantial unemployment exists. it is important to examine the effects of the reported capital budget and the reported operating budget separately. there should be a comparison of the effect of the deficit to the effects of higher taxes needed to eliminate it. the baseline budget should be used since it is the most accurate. Question 26 of 50 Which of the following statements has usually held TRUE about the relationship between the trade deficits and government budget deficits? There is no relationship between trade deficits and budget deficits. There is a positive relationship between trade deficits and budget deficits. There is a negative relationship between trade deficits and budget deficits. A relationship exists only when there is a balanced budget. Question 27 of 50 To reach the maximum money multiplier, it is assumed that commercial banks keep the amount of reserves. equal to total bank deposits. all loans get redeposited in a checkable account. there is insufficient loan demand. loans are diverted into circulating currency. Question 28 of 50 A fiduciary monetary system is fully backed by gold. dependent on barter for exchanges of goods and services. one which cannot have any inflation. dependent on the public's faith to accept the currency. Question 29 of 50 Lenders generally want borrowers to agree to invest prudently, yet once a loan is made borrowers may use the funds in a highly risky fashion. This leads to the problem of critical mass. deposit insurance. investor selection. moral hazard. Question 30 of 50 The opportunity cost of holding money is measured by a dollar. the price of government bonds. the interest yield that could have been earned by holding some other asset. the liquidity of interest-bearing assets. Question 31 of 50 The initial impact of the Fed's open market sale of government securities by the Federal Reserve is an increase in the money supply by some multiple of the dollar volume of the sale. an increase in commercial bank deposits at the Fed. a fall in the money supply by some multiple of the dollar volume of the sale. a reduction of the commercial banking system's reserve deposits at the Fed. Question 32 of 50 The opportunity cost of holding money is measured by the alternative interest yield obtainable by holding some other asset. is based on the fiduciary monetary system. refers to the amount of paper currency held by the Fed. refers to the Fed's role as the lender of last resort. Question 33 of 50 The income velocity of money is the absolute number of times, on average, that people purchase goods and services during a year. each monetary unit is spent on final goods and services. each unit of real GDP is produced by business firms. each one-unit increase in the price level occurs. Question 34 of 50 The interest-rate-based approach to the monetary policy transmission mechanism says that a change in the money supply influences aggregate demand by a change in interest rates, which changes investment. a change in interest rates, which changes the money supply. changing consumer consumption behavior as they adjust to a change in the number of dollars available. leading to shifts of the short-run aggregate supply curve. Question 35 of 50 Which of the following is NOT a reason the Fed changes the rate of growth of the money supply? to influence aggregate demand to shift the demand for money curve to influence the amount of consumption to influence the amount of investment Question 36 of 50 The demand for money for which the purpose is making unexpected purchases or meeting emergencies is considered to be part of precautionary demand. transactions demand. asset demand. savings demand. Question 37 of 50 An increase in the money supply will increase aggregate supply. decrease aggregate supply. increase aggregate demand. decrease aggregate demand. Question 38 of 50 The office of the Federal Reserve Bank of New York charged with implementing Federal Reserve open market policy actions is known as the Open Market Coordination Office. Open Market Cooperation Office. Response Desk. Trading Desk. Question 39 of 50 Country X subsidizes industry A. A worldwide recession has hit and Country X has decided to export Good A worldwide, selling the product for less than it costs to produce it. This is the infant industry argument. comparative advantage argument. dumping. a regional trade bloc. Question 40 of 50 Arguments in support of protectionism (and against free trade) include all of the following EXCEPT new and troubled industries need to be protected until they acquire sufficient strength to compete equally against their foreign counterparts. jobs at home should be protected from cheap foreign labor. protectionism increase total domestic consumption possibilities. national security interests require that nations retain the ability to produce vital materials at home and avoid dependence upon potential enemies. Question 41 of 50 The World Trade Organization is a successor organization to the United Nations. World Bank. International Court of Justice. GATT. Question 42 of 50 A problem with the infant industry argument is that it is too restrictive in targeting new industries to protect. it does not protect the most important new industries in a country. it is almost impossible to eliminate the tariff once the industry matures. it allows infant industries to mature so that tariffs can be eliminated. Question 43 of 50 For infant industry tariff protection to be valid requires that the tariff must be allowed to last forever. only industries that currently are producing efficiently should be protected. government officials must predict which industries will eventually be able to compete with more established foreign producers. the industries protected must have substantial monopoly power in the absence of foreign competition. Question 44 of 50 The standard of living in a nation depends on how well its economy functions relative to other countries. the size of the country, with larger nations always doing better than smaller ones. how well the economy functions within that country. whether or not its currency is adopted as the world's monetary standard. Question 45 of 50 One way that countries can settle international payment obligations is to run a balance of payments surplus. to run a balance of payments deficit. to use special drawing rights. to stop trading. Question 46 of 50 The balance of payments is the value of goods and services bought and sold in the world market. a summary record of a country's economic transactions with foreign residents and governments. a summary record of a country's purchases and sales of goods and services in the world market. the value of merchandise goods bought and sold in the world market. Question 47 of 50 A record of all transactions between households, firms, and the government of one country and the rest of the world is the balance of trade. balance of payments. International Monetary Fund. government budget. Question 48 of 50 Flexible exchange rates occur when speculators bet that a currency will soon depreciate. governments and central banks spend foreign exchange to prop an exchange rate at a certain level. no one knows the true value of a currency. exchange rates are determined by forces of supply and demand. Question 49 of 50 Suppose a country has a current account surplus and that there is no intervention by finance ministries or central banks. This current account surplus indicates that the country has a deficit in its capital account. a surplus in its capital account. the official reserve transactions balance is positive. the official reserve transactions balance is negative. Question 50 of 50 Exchange rates that are allowed to fluctuate in response to changes in supply and demand is known as the foreign exchange markets. standard drawing rights. fixed exchange rates. flexible exchange rates.
Explanation / Answer
Q10. The SRAS in modern Keynesian analysis in horizontal, since according to “Keynes” “price” is fixed at the SR, => SRAS is horizontal in SR.
Q11. If “MPS=1”, the multiplier will be “1”, since mathematically the multiplier is given by “1/MPS”, => “1”.
Q12. Now here “MPS=0.25”, the multiplier is “1/0.25 = 4”, so if “I” decreases by “100”, then the real GDP will be reduced by “4*100”=400.
Q13. As the real disposable income increases, => APC to falls continuously. Since APC=C/Y, so as “Y” increase => both “C” and “Y” increase, but the rate of increase in “C” less then “Y”, => APC decreases.
Q14. Since the multiplier is given by “1/1-MPC=1/MPS”, => larger the MPC, => lower the MPS, => larger is the multiplier.
Q15. “1/MPS”, is formula for “Multiplier”.