EC 202 EXAM QUESTIONS WITH
CORRECT ANSWERS GRADED A+
Suppose you have $200 to invest at a nominal interest rate of 8%. If the
inflation rate is 3%, then the real return on your investment is:
$10
If Table 11.3 represents all the investments available to the economy, the
nominal interest rate is 10%, and there is no inflation, what will be the level of
investment in the economy? (Note that the Cost represents the level of
investment for each investment project.)
$100
The present value of a given payment in the future _______ when interest rates
rise.
decreases
Which of the following is not included in M1?
savings accounts
Assume the following information about the DUCK BANK: Bank deposits are
$30,000; Loans are $20,000; Reserves are $5,000; and the reserve requirement
is 10%. The DUCK BANK is holding _______ in excess reserves.
$2,000
If the banking system has a required reserve ratio of 5 percent, then the money
multiplier is:
20
If the FED sells $7.5 million of US bonds and the reserve requirement is 25%,
M1 will eventually:
decrease by $30 million
If the quantity of money demanded exceeds the quantity of money supplied,
then the:
interest rate will increase
, If the FED has a major policy objective to decrease unemployment, it should:
decrease the reserve requirement and/or conduct an open market purchase.
Refer to Fig. 13.1. Assume the initial equilibrium point is the intersection of the
solid money demand and supply lines. Which point is a likely equilibrium
outcome if the FED conducts an open market sale and real income decreases?
E
When money is used to express the value of goods and services, it is
functioning as a:
unit of account
An open market purchase by the Fed:
Increases both investment and output
Suppose consumer tastes and preferences shift from a desire to go skiing to
an interest in snowboarding. If skis and snowboards are produced by different
firms, then firms that produce snowboards will experience:
a rise in prices, which will induce them to increase production and increase the
number of workers.
Assuming a long-run Classical aggregate supply curve, a decrease in the
money supply results in _______ in output and _______ in prices. (Note there
is a typo in the ANS9 answer to question 20 in QUES9, as the answer should
state that the long-run Classical supply is perfectly INELASTIC, not perfectly
ELASTIC.)
no change; a decrease
Assuming a short-run Keynesian aggregate supply curve, a decrease in taxes
results in _______ in output and _______ in prices.
a substantial increase; a slight or no increase
Consider Fig. 9.2. A simultaneous increase in the labor force due to an
increase in immigration and an increase in government spending would cause
a movement from ________ .
B to C
If the government wants to reduce unemployment, government spending
should be ________ and/or taxes should be _________.
increased; decreased
In a situation where the government is operating on a budget surplus, it can
reduce its overall debt by ________ .
CORRECT ANSWERS GRADED A+
Suppose you have $200 to invest at a nominal interest rate of 8%. If the
inflation rate is 3%, then the real return on your investment is:
$10
If Table 11.3 represents all the investments available to the economy, the
nominal interest rate is 10%, and there is no inflation, what will be the level of
investment in the economy? (Note that the Cost represents the level of
investment for each investment project.)
$100
The present value of a given payment in the future _______ when interest rates
rise.
decreases
Which of the following is not included in M1?
savings accounts
Assume the following information about the DUCK BANK: Bank deposits are
$30,000; Loans are $20,000; Reserves are $5,000; and the reserve requirement
is 10%. The DUCK BANK is holding _______ in excess reserves.
$2,000
If the banking system has a required reserve ratio of 5 percent, then the money
multiplier is:
20
If the FED sells $7.5 million of US bonds and the reserve requirement is 25%,
M1 will eventually:
decrease by $30 million
If the quantity of money demanded exceeds the quantity of money supplied,
then the:
interest rate will increase
, If the FED has a major policy objective to decrease unemployment, it should:
decrease the reserve requirement and/or conduct an open market purchase.
Refer to Fig. 13.1. Assume the initial equilibrium point is the intersection of the
solid money demand and supply lines. Which point is a likely equilibrium
outcome if the FED conducts an open market sale and real income decreases?
E
When money is used to express the value of goods and services, it is
functioning as a:
unit of account
An open market purchase by the Fed:
Increases both investment and output
Suppose consumer tastes and preferences shift from a desire to go skiing to
an interest in snowboarding. If skis and snowboards are produced by different
firms, then firms that produce snowboards will experience:
a rise in prices, which will induce them to increase production and increase the
number of workers.
Assuming a long-run Classical aggregate supply curve, a decrease in the
money supply results in _______ in output and _______ in prices. (Note there
is a typo in the ANS9 answer to question 20 in QUES9, as the answer should
state that the long-run Classical supply is perfectly INELASTIC, not perfectly
ELASTIC.)
no change; a decrease
Assuming a short-run Keynesian aggregate supply curve, a decrease in taxes
results in _______ in output and _______ in prices.
a substantial increase; a slight or no increase
Consider Fig. 9.2. A simultaneous increase in the labor force due to an
increase in immigration and an increase in government spending would cause
a movement from ________ .
B to C
If the government wants to reduce unemployment, government spending
should be ________ and/or taxes should be _________.
increased; decreased
In a situation where the government is operating on a budget surplus, it can
reduce its overall debt by ________ .
