Econ 104 Rustici exam 1-3 (final study)
Which of the following is true with respect to government policy and America's Great
Depression? - -A. The Federal Reserve failed in its official function as "lender of last resort"
and as a result the money supply unexpectedly expanded by 29% from
1929-1933 causing rapid deflation.
B. The Hoover Administration cut taxes and reduced real wage rates below the full-
employment equilibrium level.
C. Both Hoover and Roosevelt encouraged high wage rates and that increased total wage
payrolls.
D. The Roosevelt Administration paid farmers to grow crops and livestock to stimulate the
economy.
** E. The federal government twice instituted minimum wage laws causing massive
unemployment in labor markets.
-Which of the following is not true? - -A. A repressed inflation arises from accelerating
inflation and maximum price controls.
**B. The classical model failed in the$ 1930's because it had great difficully explaining the
severity of the Great Depression.
C. Aggregate supply is the "Q" part of the quantity equation of exchange.
D. The "spending multiplier" of Keynes is defined as 1/ (1-b) (1-tax).
E. If aggregate demand increases, and aggregate supply is inelastic, the price level will rise.
-Which of the following is true? - -A. The current American banking system is governed by
the gold standard.
**B. A saver's deposits are assets and liabilities to the bank receiving the deposit.
C. The banks are responsible for the multiple expansion or contraction of credit because of
the Keynsian Spending Multiplier.
D. If you withdraw $1 from your checking account, ceteris paribus, the total money supply
will contract.
Moving a dollar of deposits from a savings account to a checking account (assuming the
same legal deposit requirements for both) will not change
the monetary aggregate M2.
-Suppose we have two people Smith and Jones. Each person wants both one of each a
pineapple and a coconut. Below is their respective time forgone with gathering each good.
If the price is one pineapple for one coconut, which of the following is correct?
Smith:
Pineapple
50 Minutes
Coconut
160 Minutes
Jones:
,Pineapple
200 Minutes
Coconuts
180 Minutes - -A. Smith has a comparative advantage in both pineapples and coconuts.
B. Jones gains 110 minutes from trade and Smith would lose 20 minutes (so no trade
occurs).
c. Jones gains 20 minutes from trade and Smith would lose 110 minutes (so no trade occurs
).
D. Jones is absolutely inferior at producing everything therefore he will produce nothing.
**E. Smith produces pineapples and exports them for his coconut consumption.
-Assume the following information. The deposit to currency ratio is 0.2 and the reserve
deposit requirement ratio is 0.1. If the monetary base in the economy is $100 billion, the
total money supply is: - -A. $366 billion
**B. S400 billion
C $300 billion
D. $200 billion
E. This is a trick question, because there is no data on the marginal propensity to consume
-Suppose the following percentage data is known about the quantity equation variables: M
decreases 4%; V increases 1%, and Q increases 2%. What will be the resulting inflation or
deflation of nominal prices? - -A. Decrease of 6%
B. Increase of 1%
C. Increase of 3%
D. Decrease of 7%
**E. Decrease of 5%
-What is true with respect to US economic policy following World War 1? - -A. The
government gave unemployment benefits to the millions of unemployed.
**B. The government cut taxes and paid down the national debt by 10% during the
recession.
C. The government pursued a "high wages" policy to stimulate employment
D. The Federal Reserve dramatically increased the money supply by 29% during the
recession.
E. None of the above is correct.
-You are appointed as Chairman of the Board of Governors of the Federal Reserve System.
Suppose people have no expectations. If you want an expansionary monetary policy to
lower interest rates, you would: - -**A. Lower reserve requirements on banks.
B. Use open market operations to sell assets
C. Raise the discount rate charge to banks
D Aand B
E. B and C
-Suppose the long-run nominal interest rate is 10% and the real or natural rate of interest
is 6%. What does this tell us? - -A. The price level has unexpectedly fallen by 16%.
, **B. The price level is expected to rise 4% over the next year.
C. The price level is expected to fall 6% over the next year.
D. The price level has unexpectedly increased by 12%
E. This is a 'trick question' none of the above is correct.
-Suppose we are in a depression and assume as "given" all of the Keynesian model
assumptions about the macro economy. Further, suppose the real GNP is a stationary
equilibrium at $4 trillion. Also assume the full employment size of the real GNP is $5
trillion. If the marginal propensity to save (MPS) is 0.2 or 20%, what would Keynes suggest
occur to restore full employment? - -A The government lower taxes $2 trillion to spend and
directly stimulate the aggregate economy.
**B. The government run a budgetary deficit of $200 billion.
C. The government run a budgetary deficit of $400 billion.
D. The government run a budgetary deficit of $500 billion.
E. None of the above is correct.
-In "The Central Bank Role of Clearinghouse Associations" Richard Timberlake notes that
clearinghouse associations issued emergency currency in the form of "clearinghouse loan
certificates". Which of the following is true? - -A. Mass debt issuance is a modern form of
enslavement.
B. The Federal Reserve promoted the use of emergency currency from the clearinghouse
associations.
C. Emergency currency prevented crises from occurring at all.
**D. Clearinghouse certificates helped stabilize the banking system during panics.
E. Clearinghouses created a hyperinflation in 1907. The Federal Reserve was established to
solve this problem.
-The following 2 questions relate to the essay, "New Deal Policies and the Persistence of
the Great Depression: A General Equilibrium Analysis,"
by Professors Harold Cole and Lee Ohanian.
Which of the following is true ? - -A. Real wages were held significantly below productivity
from 1934 through 1939 reducing purchasing power of workers.
B. The NIRA created industry cartels to limit competition and raise wages above
equilibrium levels.
C.
production.
The National Labor Relations Act (Wagner Act of 1935) allowed unions to use coercion
with "sit down strikes" occupying factories to halt
D. A and B
**E. Band C
-L. Ohanian and H. Cole in their essay, "New Deal Policies and the Persistence of the Great
Depression" provide the statistical evidence that demonstrates: - -**A. New deal policies
did not bring the economy out of the depression, they stopped a normal recovery by
restricting employment.
Which of the following is true with respect to government policy and America's Great
Depression? - -A. The Federal Reserve failed in its official function as "lender of last resort"
and as a result the money supply unexpectedly expanded by 29% from
1929-1933 causing rapid deflation.
B. The Hoover Administration cut taxes and reduced real wage rates below the full-
employment equilibrium level.
C. Both Hoover and Roosevelt encouraged high wage rates and that increased total wage
payrolls.
D. The Roosevelt Administration paid farmers to grow crops and livestock to stimulate the
economy.
** E. The federal government twice instituted minimum wage laws causing massive
unemployment in labor markets.
-Which of the following is not true? - -A. A repressed inflation arises from accelerating
inflation and maximum price controls.
**B. The classical model failed in the$ 1930's because it had great difficully explaining the
severity of the Great Depression.
C. Aggregate supply is the "Q" part of the quantity equation of exchange.
D. The "spending multiplier" of Keynes is defined as 1/ (1-b) (1-tax).
E. If aggregate demand increases, and aggregate supply is inelastic, the price level will rise.
-Which of the following is true? - -A. The current American banking system is governed by
the gold standard.
**B. A saver's deposits are assets and liabilities to the bank receiving the deposit.
C. The banks are responsible for the multiple expansion or contraction of credit because of
the Keynsian Spending Multiplier.
D. If you withdraw $1 from your checking account, ceteris paribus, the total money supply
will contract.
Moving a dollar of deposits from a savings account to a checking account (assuming the
same legal deposit requirements for both) will not change
the monetary aggregate M2.
-Suppose we have two people Smith and Jones. Each person wants both one of each a
pineapple and a coconut. Below is their respective time forgone with gathering each good.
If the price is one pineapple for one coconut, which of the following is correct?
Smith:
Pineapple
50 Minutes
Coconut
160 Minutes
Jones:
,Pineapple
200 Minutes
Coconuts
180 Minutes - -A. Smith has a comparative advantage in both pineapples and coconuts.
B. Jones gains 110 minutes from trade and Smith would lose 20 minutes (so no trade
occurs).
c. Jones gains 20 minutes from trade and Smith would lose 110 minutes (so no trade occurs
).
D. Jones is absolutely inferior at producing everything therefore he will produce nothing.
**E. Smith produces pineapples and exports them for his coconut consumption.
-Assume the following information. The deposit to currency ratio is 0.2 and the reserve
deposit requirement ratio is 0.1. If the monetary base in the economy is $100 billion, the
total money supply is: - -A. $366 billion
**B. S400 billion
C $300 billion
D. $200 billion
E. This is a trick question, because there is no data on the marginal propensity to consume
-Suppose the following percentage data is known about the quantity equation variables: M
decreases 4%; V increases 1%, and Q increases 2%. What will be the resulting inflation or
deflation of nominal prices? - -A. Decrease of 6%
B. Increase of 1%
C. Increase of 3%
D. Decrease of 7%
**E. Decrease of 5%
-What is true with respect to US economic policy following World War 1? - -A. The
government gave unemployment benefits to the millions of unemployed.
**B. The government cut taxes and paid down the national debt by 10% during the
recession.
C. The government pursued a "high wages" policy to stimulate employment
D. The Federal Reserve dramatically increased the money supply by 29% during the
recession.
E. None of the above is correct.
-You are appointed as Chairman of the Board of Governors of the Federal Reserve System.
Suppose people have no expectations. If you want an expansionary monetary policy to
lower interest rates, you would: - -**A. Lower reserve requirements on banks.
B. Use open market operations to sell assets
C. Raise the discount rate charge to banks
D Aand B
E. B and C
-Suppose the long-run nominal interest rate is 10% and the real or natural rate of interest
is 6%. What does this tell us? - -A. The price level has unexpectedly fallen by 16%.
, **B. The price level is expected to rise 4% over the next year.
C. The price level is expected to fall 6% over the next year.
D. The price level has unexpectedly increased by 12%
E. This is a 'trick question' none of the above is correct.
-Suppose we are in a depression and assume as "given" all of the Keynesian model
assumptions about the macro economy. Further, suppose the real GNP is a stationary
equilibrium at $4 trillion. Also assume the full employment size of the real GNP is $5
trillion. If the marginal propensity to save (MPS) is 0.2 or 20%, what would Keynes suggest
occur to restore full employment? - -A The government lower taxes $2 trillion to spend and
directly stimulate the aggregate economy.
**B. The government run a budgetary deficit of $200 billion.
C. The government run a budgetary deficit of $400 billion.
D. The government run a budgetary deficit of $500 billion.
E. None of the above is correct.
-In "The Central Bank Role of Clearinghouse Associations" Richard Timberlake notes that
clearinghouse associations issued emergency currency in the form of "clearinghouse loan
certificates". Which of the following is true? - -A. Mass debt issuance is a modern form of
enslavement.
B. The Federal Reserve promoted the use of emergency currency from the clearinghouse
associations.
C. Emergency currency prevented crises from occurring at all.
**D. Clearinghouse certificates helped stabilize the banking system during panics.
E. Clearinghouses created a hyperinflation in 1907. The Federal Reserve was established to
solve this problem.
-The following 2 questions relate to the essay, "New Deal Policies and the Persistence of
the Great Depression: A General Equilibrium Analysis,"
by Professors Harold Cole and Lee Ohanian.
Which of the following is true ? - -A. Real wages were held significantly below productivity
from 1934 through 1939 reducing purchasing power of workers.
B. The NIRA created industry cartels to limit competition and raise wages above
equilibrium levels.
C.
production.
The National Labor Relations Act (Wagner Act of 1935) allowed unions to use coercion
with "sit down strikes" occupying factories to halt
D. A and B
**E. Band C
-L. Ohanian and H. Cole in their essay, "New Deal Policies and the Persistence of the Great
Depression" provide the statistical evidence that demonstrates: - -**A. New deal policies
did not bring the economy out of the depression, they stopped a normal recovery by
restricting employment.
