Macroeconomic Principles (Econ 2305)
Quiz 3 (type B)
Name : ______________________ SSN :_________________
Use the figure below to answer the following question.
1. Which of the following shifts show the effects of an import quota?
a. a shift of NCO0 to the right in Panel B
b. a shift from D0 to D1 in Panel C
c. a shift from D0 to D2 in Panel C
d. None of the above would show the effects of an import quota.
ANSWER: b. a shift from Do to D1 in Panel C
2. When the government reduces taxes, which of the following decreases?
a. consumption
b. take-home pay
c. household saving
d. None of the above is correct.
ANSWER: d. None of the above is correct.
3. When a country experiences capital flight, the interest rate
a. falls because the demand for loanable funds shifts left.
b. falls because the supply for loanable funds shifts right.
c. rises because the demand for loanable funds shifts right.
d. rises because the supply for loanable funds shifts left.
ANSWER: c. rises because the demand for loanable funds shifts right.
4. When the Fed decreases the money supply we expect
a. interest rates and stock prices to rise.
b. interest rates and stock prices to fall.
c. interest rates to rise and stock prices to fall.
d. interest rates to fall and stock prices to rise.
ANSWER: c. interest rates to rise and stock prices to fall.
For the following, use the graph below.
5. In the foreign-currency exchange market, the effects of an increase in the budget surplus is illustrated as a move from g to
a. g.
b. h.
c. i.
d. None of the above is correct.
ANSWER: c. i.
6. The government purchases multiplier is defined as
a. MPC.
b. 1 – MPC.
c. 1/MPC.
d. 1/(1 – MPC).
ANSWER: d. 1/(1 – MPC).
7. In the open-economy macroeconomic model, the market for loanable funds identity can be written as
a. S = I
b. S = NCO
c. S = I + NCO
d. S + I = NCO
ANSWER: c. S = I + NCO
8. Which of the following is the most liquid asset?
a. capital goods
b. stocks and bonds with a low risk
c. stocks and bonds with a high risk
d. funds in a checking account
ANSWER: d. funds in a checking account
9. Jack and Jill are co-owners of the U.S. firm Wells Petroleum. Jack borrows money to build an oil well in Texas. Jill borrows money to build an oil well in Venezuela.
a. Both Jack and Jill's purchase of capital count as demand for loanable funds in the U.S. market.
b. Neither Jack nor Jill's purchase of capital count as demand for loanable funds in the U.S. market.
c. Jack's purchase of capital counts as demand for loanable funds in the U.S. market; Jill's purchase does not.
d. Jill's purchase of capital counts as demand for loanable funds in the U.S. market; Jack's purchase does not.
ANSWER: a. Both Jack's and Jill's purchase of capital count as demand for loanable funds in the U.S. market.
10. If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?
a. P = e/P*
b. 1 = e/P*
c. e = P*/P
d. None of the above is correct.
ANSWER: c. e = P*/P
11. An increase in the money supply would move the economy from C to
a. B in the short run and the long run.
b. D in the short run and the long run.
c. B in the short run and A in the long run.
d. D in the short run and C in the long run.
ANSWER: c. B in the short run and A in the long run.
12. According to purchasing-power parity, if prices in the United States increase by a smaller percentage than prices in Algeria, then
a. the real exchange defined as Algerian goods per unit of U.S. goods rises.
b. the real exchange defined as Algerian goods per unit of U.S. goods falls.
c. the nominal exchange rate defined as Algerian currency per dollar rises.
d. the nominal exchange rate defined as Algerian currency per dollar falls.
ANSWER: c. the nominal exchange rate defined as Algerian currency per dollar rises.
13. An increase in the price level makes the dollars people hold worth
a. more, so they spend more.
b. more, so they spend less.
c. less, so they spend more.
d. less, so they spend less.
ANSWER: d. less, so they spend less.
14. Which of the following does purchasing-power parity imply?
a. The purchasing power of the dollar is the same in the U.S. as in foreign countries.
b. The price of domestic goods relative to foreign goods cannot change.
c. The nominal exchange rate is the ratio of foreign to U.S. prices.
d. All of the above are correct.
ANSWER: a. The purchasing power of the dollar is the same in the U.S. as in foreign countries.
15. If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports
a. increase and aggregate demand shifts right.
b. increase and aggregate demand shifts left.
c. decrease and aggregate demand shifts right.
d. decrease and aggregate demand shifts left.
ANSWER: d. decrease and aggregate demand shifts left.
16. Suppose that the dollar buys more bananas in Honduras than in Guatemala. Traders could make a profit by
a. buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras.
b. buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Guatemala.
c. buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Guatemala.
d. buying bananas in Guatemala and selling them in Honduras, which would tend to raise the price of bananas in Honduras.
ANSWER: a. buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras.
17. Which of the following would make the price level decrease and real GDP increase?
a. long-run aggregate supply shifts right
b. long-run aggregate supply shifts left
c. aggregate demand shifts right
d. aggregate demand shifts left
ANSWER: a. long-run aggregate supply shifts right
18. Which of the sentences concerning the aggregate demand and aggregate supply model is correct?
a. The aggregate demand and supply model is nothing more than a large version of the model of market demand and supply.
b. The price level adjusts to bring aggregate demand and supply into balance.
c. The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price.
d. All of the above are correct.
ANSWER: b. The price level adjusts to bring aggregate demand and supply into balance.
19. If the U.S. real exchange rate appreciates relative to the euro, U.S. exports to Europe
a. and European exports to the U.S. rise.
b. and European exports to the U.S. fall.
c. rise, and European exports to the U.S. fall.
d. fall, and European exports to the U.S. rise.
ANSWER: d. fall, and European exports to the U.S. rise.
20. Foreign-produced goods and services that are sold domestically are called
a. imports.
b. exports.
c. net imports.
d. net exports..
ANSWER: a. imports.
21. During a recession the economy experiences
a. rising employment and income.
b. rising employment and falling income.
c. rising income and falling employment.
d. falling employment and income.
ANSWER: d. falling employment and income.
22. Oceania buys $100 of wine from Escudia and Escudia buys $40 of wool from Oceania. What are the net exports of Oceania and Escudia in that order?
a. $140 and $140
b. $100 and $40
c. $60 and –$60
d. None of the above is correct.
ANSWER: d. None of the above is correct.
23. A trade policy is a government policy
a. directed toward the goal of improving the tradeoff between equity and efficiency.
b. that directly influences the quantity of goods and services that a country imports or exports.
c. directed toward the goal of increasing domestic trade.
d. toward trade unions.
ANSWER: b. that directly influences the quantity of goods and services that a country imports or exports.
24. The reduction in demand that results when a fiscal expansion raises the interest rate is called the
a. multiplier effect.
b. crowding-out effect.
c. accelerator effect.
d. Riccardian equivalence effect.
ANSWER: b. crowding-out effect.
25. Which of the following statements is true?
a. In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds.
b. In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.
c. In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck.
d. In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.
ANSWER: b. In the long run, output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.
26. The variable that links the market for loanable funds and the foreign-currency exchange market is
a. net capital outflow.
b. national saving.
c. exports.
d. domestic investment.
ANSWER: a. net capital outflow.
27. If a country’s imports are greater than its exports, the country is said to have a
a. trade surplus.
b. trade deficit.
c. comparative advantage.
d. absolute advantage.
ANSWER: b. trade deficit.
28. The theory of liquidity preference assumes that the nominal supply of money is determined by the
a. level of real GDP.
b. rate of inflation.
c. interest rate.
d. the Federal Reserve.
ANSWER: d. the Federal Reserve.
29. Most economists use the aggregate demand and aggregate supply model primarily to analyze
a. short-run fluctuations in the economy.
b. the effects of macroeconomic policy on the prices of individual goods.
c. the long-run effects of international trade policies.
d. productivity and economic growth
ANSWER: a. short-run fluctuations in the economy.
30. In the United States, a three-pound can of coffee costs about $5. Suppose the exchange rate is about 0.8 euros per dollar and that a three-pound can of coffee in Belgium costs about 3 euros. What is the real exchange rate?
a. 5/3 cans of Belgian coffee per can of U.S. coffee
b. 4/3 cans of Belgian coffee per can of U.S. coffee
c. 3/4 cans of Belgian coffee per can of U.S. coffee
d. 3/5 cans of Belgian coffee per can of U.S. coffee
ANSWER: b. 4/3 cans of Belgian coffee per can of U.S. coffee