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ECON312N Principles of Economics

ECON312N Principles of Economics

ECON312N Principles of Economics

Week 8 Quiz

Question 1

How do the  Fed’s monetary policy actions influence the exchange rate?

The Fed influences the exchange rate by changing the U.S. interest rate differential.

The Fed influences the exchange rate by conducting transactions in the foreign exchange market.

The Fed can influence the exchange rate only if it changes expectations.

The Fed? can’t influence the exchange rate because the Fed has no influence on foreign interest rates.

 

Question 2

The Fed’s policy tools include

required reserve ratios, the discount rate, open market operations, and extraordinary crisis measures.

holding deposits for the U.S. government, reserve requirements, and the discount rate.

required reserve ratios, income tax rates, and open market operations.

setting regulations for lending standards and extraordinary crisis measures.

supervision of the banking system and buying and selling commercial banks.

 

Question 3

The tax multiplier is the

magnification effect of a change in taxes on government expenditures.

magnification effect of a change in taxes on the budget deficit.

magnification effect of a change in taxes on the national debt.

magnification effect of a change in taxes on aggregate demand.

magnification effect of a change in taxes on aggregate supply.

 

Question 4

The monetary multiplier is 3 and the change in the monetary base is $100,000. How much will the quantity of money increase?

$100,000

$200,000

$70,000

$300,000

$33,333

 

Question 5

There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations?

estimating potential GDP

fiscal multiplier

shrinking area of lawmaker discretion

economic forecasting

lawmaking time lag

 

Question 6

Using the data in the above table, if potential GDP for this economy is $25 billion, then in order to restore full employment, the federal funds rate can be

lowered so that consumption expenditure and investment increase, though net exports decrease.

lowered so that government expenditure on goods and services increase.

lowered so that consumption expenditure, investment, and net exports increase.

raised so that net exports increase.

raised so that consumption expenditure, investment, and net exports increase.

 

Question 7

The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand.

expenditure; tax; decreases

tax; expenditure; does not change

tax; expenditure; decreases

expenditure; tax; does not change

expenditure; tax; increases

 

Question 8

When the government’s outlays equal its tax revenue, the budget

has a deficit and the national debt is increasing.

has a surplus and the national debt is increasing.

has a surplus and the national debt is decreasing.

has a deficit and the national debt is decreasing.

is balanced and the national debt is not changing.

 

Question 9

What the U.S. jobs report means for the Fed

Despite U.S. job creation exceeding forecasts in  July, experts believe that with weak output growth, the Fed will not raise the interest rate until after the U.S. presidential election.

Source: Financial Times, August  5, 2016

Explain why the Fed might be cautious about raising interest rates despite strong jobs growth.

The Fed might be cautious about raising interest rates despite strong jobs growth because  _______.

although raising interest rates encourages further job? growth, it also creates inflation

raising interest rates will slow real GDP growth even? further, decrease jobs? growth, and at the same time create inflation

with slow real GDP? growth, raising interest rates will slow real GDP growth even further and decrease jobs growth

raising interest rates will increase foreign? investment, and domestic investment is better for the U.S. economy

 

Question 10

Clinton and Trump on fiscal policy

In the 2016 Presidential election campaign, both Hillary Clinton and Donald Trump committed to big government infrastructure spending and tax cuts.

Source: The Wall Street Journal, July  27, 2016

Consider an increase in infrastructure spending and a tax cut of the same magnitude. What policy will change aggregate demand the most: an increase in infrastructure spending or a cut in taxes?

A combination of an increase in infrastructure spending and an equal cut in taxes

Neither an increase in infrastructure spending nor a cut in taxes will influence aggregate demand

A cut in taxes

An increase in infrastructure spending

 

Question 11

During the Great Depression, real GDP decreased, unemployment soared, and the inflation rate was negative. Which would have been the appropriate federal government policy combination to improve economic performance?

decrease government expenditure, increase taxes, decrease the quantity of money

increase government expenditure, decrease taxes, increase the quantity of money

increase government expenditure, decrease taxes, decrease the quantity of money

do not change government expenditures or taxes , increase the quantity of money

decrease government expenditures, increase taxes, do not change the quantity of money

 

Question 12

The money multiplier is equal to? ______.

monetary base divided by quantity of money

quantity of money divided by monetary base

change in monetary base divided by change in the quantity of money

the Federal Funds rate

 

Question 13

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.

raising; not changing

cutting; decreasing

cutting; increasing

raising; decreasing

raising; increasing

 

Question 14

Control of monetary policy rests with

Congress.

the President.

the Federal Reserve.

the Comptroller of the Currency.

the U.S. Treasury.

 

Question 15

To fight unemployment and close a recessionary? gap, the Fed? ________.

stimulates aggregate demand by lowering the federal funds? rate, which increases the quantity of money

increases? employment, which increases real GDP

increases bank? reserves, which banks use to make new loans to? businesses, which increases aggregate supply

stimulates aggregate supply by lowering the federal funds? rate, which increases potential GDP

 

Question 16

The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?

$300

$2,700

$3,000

$900

$2,910

 

Question 17

The Federal Reserve fears that the United States economy is growing too slowly and is stuck in a recession. To move the economy back to its potential GDP, the most likely policy action for the Fed is to ________ the federal funds and thus ________ .

lower; increase aggregate supply

lower; increase aggregate demand

raise; increase aggregate demand

raise; decrease aggregate demand

lower; decrease aggregate supply

 

Question 18

Explain how aggregate demand changes when the government increases both expenditures on goods and services and taxes by  $100 billion.

Aggregate demand  ______ because the increase in government expenditure has  ______ effect on aggregate demand than the effect of the tax increase.

?increases; a smaller

?decreases; a larger

?increases; a larger

?decreases; a smaller

 

Question 19

An example of automatic fiscal policy is

Congress passing a tax rate reduction package.

the federal government expanding spending at the Department of Education.

a change in taxes that has no multiplier effect.

expenditure for unemployment compensation increasing as economic growth slows.

the Federal Reserve reducing interest rates as economic growth slows.

 

Question 20

When the Fed ________ securities in an open market operation, banks’ reserves ________, and therefore lending ________.

sells; decrease; increases

buys; do not change; does not change

buys; increase; increases

buys; decrease; decreases

sells; increase; increases

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