ECON 252 Final Questions with Correct Answers (Grade A+)
Question 1: Scenario: The following figure shows the federal funds market. Assume that the market of
reserves is in equilibrium at point (R0, i0). If the Fed uses an expansionary monetary policy, the new
equilibrium quantity of reserves is ________ and the new federal funds rate is ________.
Answer: R1; i1
Question 2: If the value of a government taxation multiplier is 1.8, which of the following is likely to be
true if all other variables remain unchanged?
Answer: A $1 reduction in taxation increases GDP by $1.80.
Question 3: Which of the following is true of economic expansions?
Answer: Economic expansions are defined as the periods between recessions.
Question 4: According to Okun's Law, if the annual growth rate of real GDP is 2.5 percent, the
unemployment rate is likely to ________.
Answer: decrease by 0.25 percent
Question 5: In a horizontal section of a labor supply curve, ________.
Answer: the wage rate does not change as the quantity of labor supplied changes
Question 6: If an economic shock increases labor demand, equilibrium employment ______ and real
GDP ________
Answer: rises rises
Question 7: If wages are flexible, the increase in employment and real GDP will be _______ the increase
if wages are rigid.
Answer: smaller than
Question 8: What do countercyclical fiscal and monetary policies have in common? i) They are both
used to reduce economic fluctuations. ii) They both work by shifting the labor supply curve.
Answer: i) is true and ii) is false
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, Question 9: Scenario: The following figure shows the federal funds market. Assume that the market of
reserves is in equilibrium at $500 billion in reserves and a 3 percent federal funds rate. Suppose the Fed
wants to raise the federal funds rate by 2 percent. To do this, the Fed will have to ________.
Answer: sell $400 billion worth of bonds to a private bank
Question 10: A sudden fall in housing prices in Potentia has lowered the confidence of households.
Assuming all else equal, this is likely to lead to a(n) ________.
Answer: decline in current consumption
Question 11: What phrase describes best the predictability of turning points in the U.S. economy?
Answer: Limited predictability
Question 12: Which of the following is true?
Answer: The supply of credit and the quantity of real output are positively correlated.
Question 13: Which of the following is likely to happen during a boom?
Answer: The Fed will increase the federal funds rate.
Question 14: Which feature of economic fluctuations was not present during the Great Depression?
Answer: All of the above were present during the Great Depression
Question 15: The primary tool of monetary policy is ________.
Answer: the Fed's control of the federal funds rate
Question 16: In Moricana, unemployment is likely to be classified as ____________.
Answer: involuntary
Question 17: Suppose that the mythical country Moricana has a very high minimum wage. Labor
market laws are trade unionfriendly and allow unions a high degree of bargaining power. Moricana is
in a recessionlong dashcapacity utilization in the economy is at an all-time low, surveys show that firms
do not expect economic conditions to improve in the coming year. Firms in the country are cutting back
on capital spending and investment. In Moricana, wages are likely to be ____________.
Answer: rigid
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Question 1: Scenario: The following figure shows the federal funds market. Assume that the market of
reserves is in equilibrium at point (R0, i0). If the Fed uses an expansionary monetary policy, the new
equilibrium quantity of reserves is ________ and the new federal funds rate is ________.
Answer: R1; i1
Question 2: If the value of a government taxation multiplier is 1.8, which of the following is likely to be
true if all other variables remain unchanged?
Answer: A $1 reduction in taxation increases GDP by $1.80.
Question 3: Which of the following is true of economic expansions?
Answer: Economic expansions are defined as the periods between recessions.
Question 4: According to Okun's Law, if the annual growth rate of real GDP is 2.5 percent, the
unemployment rate is likely to ________.
Answer: decrease by 0.25 percent
Question 5: In a horizontal section of a labor supply curve, ________.
Answer: the wage rate does not change as the quantity of labor supplied changes
Question 6: If an economic shock increases labor demand, equilibrium employment ______ and real
GDP ________
Answer: rises rises
Question 7: If wages are flexible, the increase in employment and real GDP will be _______ the increase
if wages are rigid.
Answer: smaller than
Question 8: What do countercyclical fiscal and monetary policies have in common? i) They are both
used to reduce economic fluctuations. ii) They both work by shifting the labor supply curve.
Answer: i) is true and ii) is false
Page 1
, Question 9: Scenario: The following figure shows the federal funds market. Assume that the market of
reserves is in equilibrium at $500 billion in reserves and a 3 percent federal funds rate. Suppose the Fed
wants to raise the federal funds rate by 2 percent. To do this, the Fed will have to ________.
Answer: sell $400 billion worth of bonds to a private bank
Question 10: A sudden fall in housing prices in Potentia has lowered the confidence of households.
Assuming all else equal, this is likely to lead to a(n) ________.
Answer: decline in current consumption
Question 11: What phrase describes best the predictability of turning points in the U.S. economy?
Answer: Limited predictability
Question 12: Which of the following is true?
Answer: The supply of credit and the quantity of real output are positively correlated.
Question 13: Which of the following is likely to happen during a boom?
Answer: The Fed will increase the federal funds rate.
Question 14: Which feature of economic fluctuations was not present during the Great Depression?
Answer: All of the above were present during the Great Depression
Question 15: The primary tool of monetary policy is ________.
Answer: the Fed's control of the federal funds rate
Question 16: In Moricana, unemployment is likely to be classified as ____________.
Answer: involuntary
Question 17: Suppose that the mythical country Moricana has a very high minimum wage. Labor
market laws are trade unionfriendly and allow unions a high degree of bargaining power. Moricana is
in a recessionlong dashcapacity utilization in the economy is at an all-time low, surveys show that firms
do not expect economic conditions to improve in the coming year. Firms in the country are cutting back
on capital spending and investment. In Moricana, wages are likely to be ____________.
Answer: rigid
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