ECO-101_Sec=B05 Summer 2016

• Question 1

  2 out of 2 points

  	Which of the following policies is a supply-side lever?
  	Response Feedback: A higher level of infrastructure lowers production costs, leading to an increase in AS.

• Question 2

  2 out of 2 points

  	Investment in human capital:
  	Response Feedback: A more productive workforce with greater skills and training is capable of producing more, leading to an increase in AS.

• Question 3

  2 out of 2 points

  	Which of the following will cause an increase in unemployment and inflation at the same time?
  	Response Feedback: A leftward shift of the AS curve will lead to a new macro equilibrium at a lower level of output, so unemployment will be higher, and a higher price level.

• Question 4

  2 out of 2 points

  	Which of the following is consistent with the monetarist view?
  	Response Feedback: This follows the logic of crowding out: lower taxes will lead to lower government spending but ultimately to higher private sector spending.

• Question 5

  2 out of 2 points

  	The In the News article titled "Prices Are low! Mortgages Cheap! But You Can't Get One" indicates that
  	Response Feedback: If banks do not readily make loans, open market purchases will not go through the regular money multiplier process and less money will be created. Also, although both mortgage rates and home prices are lower, few people can afford a large down payment for a home after accumulating a lot of debt for consumer expenditures.

• Question 6

  2 out of 2 points

  	In Figure 15.3, the Fed can change the equilibrium interest rate from 2 percent to 6 percent by
  	Response Feedback: Decreasing the money supply through open market sales will lead to higher interest rates.

• Question 7

  2 out of 2 points

  	Higher unemployment and higher inflation rates will most likely occur with:
  	Response Feedback: The Phillips curve will shift to the right as the AS curve moves to the left.

• Question 8

  0 out of 2 points

  	The Fair Labor Standards Act of 1938:
  	Response Feedback: The Fair Labor Standards Act of 1938 set minimum wage at 25 cents per hour. Since then, the minimum wage has been raised from time to time even to the present day.

• Question 9

  2 out of 2 points

  	An increase in the restrictions on immigration will shift the:
  	Response Feedback: Tighter immigration controls will reduce population and labor supply growth, forcing industries to pay higher wages or do without key workers, decreasing the AS curve.

• Question 10

  2 out of 2 points

  	Employee benefits mandated by the government make it:
  	Response Feedback: Because production costs are higher, employers are less likely to produce enough to allow the economy to reach full-employment.

• Question 11

  2 out of 2 points

  	A movement along the Phillips curve shows that the unemployment rate and inflation rate are:
  	Response Feedback: When one variable rises along the Phillips curve, the other variable falls.

• Question 12

  2 out of 2 points

  	According to Bernanke's policy guide, a 1/4 point decrease in long-term interest rates results in a
  	Response Feedback: This rule, used at present by the Fed, suggests that you get a $50 billion boost from lowering the long-term rates by 1/4 of a point.

• Question 13

  2 out of 2 points

  	If a lender desires to earn a real return of 3 percent on a loan and the anticipated rate of inflation is 2 percent, the lender should charge a
  	Response Feedback: The real interest rate is equal to the nominal interest rate minus the rate of inflation.

• Question 14

  2 out of 2 points

  	A progressive tax system:
  	Response Feedback: In a progressive tax system, the marginal tax rate is low at low levels of income and rises as income levels rise.

• Question 15

  0 out of 2 points

  	A tax rebate:
  	Response Feedback: Since tax rebates are just a one-time windfall to consumers and do not actually change marginal tax rates, their use does not lead to an increase in AS.

• Question 16

  2 out of 2 points

  	The "pay or play" approach means that:
  	Response Feedback: President Clinton forced employers to train their workers or face a penalty tax in order to increase the human capital stock and shift AS to the right.

• Question 17

  0 out of 2 points

  	A basic contention of supply-side economists is that regulatory costs are now too ________ and cause AS to shift to the ________.
  	Response Feedback: If the government would lower some of these regulatory costs imposed on business, then businesses would be able to expand increasing the AS.

• Question 18

  2 out of 2 points

  	According to Figure 15.5, the liquidity trap occurs at an interest rate of
  	Response Feedback: A liquidity trap occurs along the horizontal portion of the money demand curve, in this case where the interest rate is equal to 2 percent.

• Question 19

  2 out of 2 points

  	If the economy is in the vertical portion of the aggregate supply curve, according to monetarists, an increase in the money supply in the long run will
  	Response Feedback: Shifting the AD curve rightward along the vertical portion of the AS curve will only result in a new price level.

• Question 20

  2 out of 2 points

  	All of the following impact the effectiveness of Fed policy except
  	Response Feedback: The Treasury does not play any role in carrying out monetary policy; it does not release money, for example.

• Question 21

  2 out of 2 points

  	Refer to Figure 15.7. Suppose the money supply increases. This will cause interest rates to __________ and cause a shift from point _____________.
  	Response Feedback: Increasing the money supply lowers interest rates, increases investment, and shifts AD to the right, leading to a new macro equilibrium.

• Question 22

  0 out of 2 points

  	Tax elasticity of supply is:
  	Response Feedback: The tax elasticity of supply is calculated as any other elasticity, the percentage change in the amount supplied, divided by the percentage change in price, but in this case the tax rate is the price.

• Question 23

  2 out of 2 points

  	The consensus view:
  	Response Feedback: The consensus view uses the Keynesian view more below full capacity while the monetarist view becomes important near full capacity.

• Question 24

  2 out of 2 points

  	A decrease in marginal tax rates will cause ________ in investment and a ________ shift in AS.
  	Response Feedback: By keeping marginal tax rates low, businesses are encouraged to invest more, thereby increasing the productive capital stock and shifting the AS curve.

• Question 25

  2 out of 2 points

  	All of the following are disproportionately affected by monetary policy except
  	Response Feedback: Congressional salaries are not directly impacted by monetary policy but are altered through the political process; any construction-related industry is extremely sensitive to changes in the interest rates.

• Question 26

  2 out of 2 points

  	U.S. multinational nonbank corporations can borrow money from all of the following except
  	Response Feedback: The Federal Reserve district banks make loans only to banks through the discount window, not to multinational corporations.

• Question 27

  2 out of 2 points

  	An improvement in business expectations will cause a:
  	Response Feedback: Better expectations in the business community regarding the economy or government regulation will alter investors' willingness to expand businesses productive capacity.

• Question 28

  2 out of 2 points

  	Refer to Figure 16.2. For the given Phillips curve, a decrease in aggregate demand could cause a:
  	Response Feedback: A lower AD may lead to a lower price level when the economy is near full capacity, resulting in lower inflation and higher unemployment, or a movement from A towards point B.

• Question 29

  2 out of 2 points

  	A decrease in marginal tax rates will ________ after-tax profits and ________ more investment.
  	Response Feedback: By keeping marginal tax rates low, businesses are encouraged to invest more, thereby increasing the productive capital stock and shifting the AS curve.

• Question 30

  0 out of 2 points

  	In Figure 15.2, if the money supply increased from $200 billion to $300 billion, all of the following would be likely to occur except
  	Response Feedback: A change in the money supply will lead to a movement along the money demand curve, not a shift, and will result in a new equilibrium interest rate.

• Question 31

  0 out of 2 points

  	The liquidity trap
  	Response Feedback: Individuals may choose to hold lots of money and no bonds when rates are very low; additional increases in the money supply will have no effect on interest rates. At interest rates approaching zero, the opportunity cost of holding money approaches zero.

• Question 32

  2 out of 2 points

  	A decrease in restrictions on immigration will result in:
  	Response Feedback: More lenient immigration controls will increase population and labor supply growth, allowing industries to pay lower wages and easily find workers; this will lower production costs and increase the AS curve.

• Question 33

  2 out of 2 points

  	An increase in the money supply will
  	Response Feedback: A lower interest rate will spur additional spending by businesses through investment, as well as increased consumption of interest-sensitive durable consumer goods.

• Question 34

  2 out of 2 points

  	Carolina holds $2,000 in her savings account in case of a medical emergency. This represents the
  	Response Feedback: Since the money is set aside for potential medical emergencies, this choice of how much money to hold is part of the precautionary demand for money.

• Question 35

  2 out of 2 points

  	What impact do transfer payments have?
  	Response Feedback: By giving individuals less incentive to work, labor force participation decreases, resulting in a leftward shift of the AS curve.

• Question 36

  2 out of 2 points

  	Lower interest rates redistribute income from
  	Response Feedback: Income is redistributed from lenders to borrowers when interest rates fall due to the fact that borrowers are not forced to pay as much and lenders will receive less.

• Question 37

  0 out of 2 points

  	In Figure 15.3, the Fed can decrease the equilibrium interest rate from 6 percent to 2 percent by
  	Response Feedback: A lower reserve requirement allows bank to lend out more reserves, thereby increasing the money supply and lowering the interest rate.

• Question 38

  2 out of 2 points

  	A movement up the Phillips curve will cause:
  	Response Feedback: This movement will lead to a higher inflation rate and a lower rate of unemployment.

• Question 39

  2 out of 2 points

  	Which of the following causes stagflation?
  	Response Feedback: A decrease in AS will lead to stagflation which is the simultaneous occurrence of high employment and high inflation.

• Question 40

  2 out of 2 points

  	Holding the velocity of money constant, according to the equation of exchange, a 10 percent increase in the money supply could possibly cause which of the following?
  	Response Feedback: According to the equation of exchange with velocity constant, a 10 percent increase in the money supply would increase either the price level by 10 percent or the quantity of output by 10 percent, or some combination of the two adding up to a total 10 percent change.

• Question 41

  2 out of 2 points

  	Monetary stimulus will fail if
  	Response Feedback: If lower interest rates do not cause an increase in aggregate demand due to either low consumer confidence or the economy being in the liquidity trap, then the monetary stimulus has failed.

• Question 42

  0 out of 2 points

  	Refer to Figure 15.6. All of the following Fed actions are likely to increase the aggregate demand curve from AD1 to AD2 except
  	Response Feedback: Any Fed tool used to increase the money supply will increase AD, but raising the discount rate will do the opposite.

• Question 43

  0 out of 2 points

  	A decrease in aggregate demand could be caused by
  	Response Feedback: Contractionary monetary policy raises interest rates, reduces investment, and shifts the AD curve to the left.

• Question 44

  2 out of 2 points

  	Stagflation is the result of:
  	Response Feedback: A decrease in AS will lead to stagflation which is the simultaneous occurrence of high unemployment and high inflation.

• Question 45

  2 out of 2 points

  	The normal market demand curve for money is
  	Response Feedback: Due to the normal inverse relationship between the interest rate and the amount of money individuals desire to hold, the money demand curve is downward-sloping at very low interest rates, where it may become horizontal due to the liquidity trap.

• Question 46

  2 out of 2 points

  	The liquidity trap illustrated in Figure 15.5 is the result of a
  	Response Feedback: With such a low opportunity cost of holding money, individuals will hang onto large amounts of funds.

• Question 47

  2 out of 2 points

  	An increase in the misery index would definitely result from:
  	Response Feedback: The rightward shift of the Phillips curve is caused by a decrease in AS; this creates stagflation which causes both unemployment and inflation to increase which when added together determine the misery index.

• Question 48

  0 out of 2 points

  	Currency held by the public, balances in transactions accounts, plus balances in most savings accounts and money market mutual funds are the
  	Response Feedback: The M2 money supply is a broader measure than the M1 money supply, adding funds in savings accounts and money market accounts.

• Question 49

  0 out of 2 points

  	Money held to buy bonds in the future represents the
  	Response Feedback: Any funds set aside to take advantage of financial opportunities represent part of the speculative demand for money.

• Question 50

  2 out of 2 points

  	Tariffs and quotas on imported goods shift the:
  	Response Feedback: By increasing the cost of inputs for businesses obtained through trade, or limiting their availability, government causes production costs to rise, which leads to a leftward shift of the AS curve.

Thursday, July 21, 2016 8:40:26 AM EDT