Econ Midterm 3 Practice Exam

Front 1

at higher interest rates

Back 1

individuals want to hold less money because the opportunity cost of holding money is higher

Front 2

regard to the money demand curve...

Back 2

if the price level increases, individuals will want to hold more cash at the given interest rate, which will cause the money demand curve to shift up and to the right

Front 3

When is it most appropriate to pursue contractionary fiscal policy?

Back 3

When the federal government suspects increasing inflationary pressures which might have future negative effects on the economy

Front 4

What is the goal of contractionary fiscal policy?

Back 4

To discourage inflation by decreasing total spending in the economy

Front 5

To pursue contractionary fiscal policy, the federal government could

Back 5

Decrease government spending and increase taxes

Front 6

How does contractionary fiscal policy affect consumer decision-marking?

Back 6

With higher taxes, consumers decrease their consumption

Front 7

"Crowding in" refers to the fact that

Back 7

decreases in government spending put downward pressure on interest rates which increases private investment

Front 8

The aggregate demand curve is downward-sloping because

Back 8

higher equilibrium prices (P*) are associated with higher equilibrium interest rates

Front 9

Which of the following cause the aggregate demand curve to shift to the right?

Back 9

Expansionary monetary policy and Expansionary fiscal policy

Front 10

The federal government can cause the Aggregate Demand curve to shift to the left by

Back 10

Increasing taxes

Front 11

Firms hire workers until

Back 11

the nominal wage equals the marginal revenue product of labor

Front 12

Which of the following changes will increase the demand for labor?

Back 12

A increase in the price of output and an increase in the marginal product of labor

Front 13

What is a correct description of the link between prices, employment, and output in the Long-Run on the the production side?

Back 13

There is no relationship between price, employment, and output in the Long-Run

Front 14

What explains the answer to the link between prices, employment, and output in the Long-Run on the production side?

Back 14

The real wage is fixed in the Long-Run and The nominal wages is variable in the Long-Run

Front 15

Which of the following correctly describes the link between equilibrium prices and equilibrium output on the spending side?

Back 15

Decreases in price are associated with decreases in the interest rate, decreases in total spending, and decreases in equilibrium output

Front 16

As expansionary monetary policy (say a decrease in the discount rate combined with an open-market purchase of bonds) will result in which of the following?

Back 16

An increase in equilibrium output in the Short-Run

Front 17

Which of the following explains the answer to: As expansionary monetary policy (say a decrease in the discount rate combined with an open-market purchase of bonds) will result in which of the following?

Back 17

Increasing AD puts upward pressure on prices which causes the real wage to decrease and firms to increase employment and output in the Short-Run

Front 18

As compared to the initial Long-Run equilibrium, what effect will the above policy have on equilibrium price and equilibrium output once we reach the new Long-Run equilibrium?

Back 18

Higher prices and no change in output

Front 19

We would refer to the change in higher prices and no change in output as...

Back 19

Demand-pull inflation

Front 20

A significant short-term decrease in input prices (say due to the workers agreeing to a one-time reduction in wages) will result in which of the following in the short run?

Back 20

Lower prices and increased output

Front 21

As compared to the initial Long-Run equilibrium, what effect will lower prices and increased output shock have on equilibrium price and equilibrium output once we reach the new Long-Run equilbrium?

Back 21

Lower prices an no change in output

Front 22

What policy tools would you recommend be used to smooth the business cycle when the economy is in an expansionary period?

Back 22

Open market sale of bonds by the Fed

Front 23

If the dollar depreciates so that each dollar buys fewer units of a foreign currency, ceteris paribus will

Back 23

increase our exports

Front 24

In reference to when a dollar depreciates so that each dollar buys fewer units of a foreign currency, ceteris paribus will..., who will benefit most from the change?

Back 24

American producers

Front 25

What would create an increase in the exchange rate?

Back 25

An increase in the supply of dollars

Front 26

What would cause an increase in the supply of dollars?

Back 26

An increase in the price of U.S. goods relative to the price of foreign goods.

Front 27

How does the open-economy affect the Fed's ability to conduct monetary policy?

Back 27

Net export effects reinforce the effectiveness of monetary policy