Question 1

Suppose Country A has experienced a sustained increase in real GDP per capita over the last 50 years, while Country B's real GDP per capita has remained nearly constant. Which of the following is the most plausible explanation for this difference, according to the Solow growth model?

Accepted Answer

Country A has invested more in physical capital and technological innovation than Country B.

Question 2

Which of the following best describes the relationship between aggregate demand and the price level, as depicted by the aggregate demand curve?

Accepted Answer

The aggregate demand curve is downward sloping because as the price level rises, the real value of money balances falls, reducing consumption and investment.

Question 3

If the U.S. economy is operating below its potential output, which of the following monetary policy actions by the Federal Reserve is most likely to restore full employment?

Accepted Answer

Lowering the federal funds rate target.

Question 4

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 5

Suppose the reserve requirement is 10%. If a customer deposits $1,000 in cash into a checking account at a commercial bank, what is the maximum possible increase in the money supply, assuming banks lend out all excess reserves and there are no currency drains?

Accepted Answer

$10,000

Question 6

During the 2007-2009 recession, the Federal Reserve implemented several unconventional monetary policies. Which of the following best describes one of these policies?

Accepted Answer

The Fed engaged in quantitative easing by purchasing large quantities of long-term securities.

Question 7

Which of the following best explains why some countries remain poor despite access to modern technology?

Accepted Answer

They lack effective institutions, such as secure property rights and rule of law, which are necessary for economic growth.

Question 8

If the aggregate supply curve is upward sloping in the short run, what happens to output and the price level when aggregate demand increases?

Accepted Answer

Both output and the price level increase.

Question 9

Which of the following equations correctly represents the simple money multiplier, $$m$$, given a required reserve ratio $$rr$$?

Accepted Answer

$$m = \frac{1}{rr}$$

Question 10

A country experiences rapid economic growth after implementing policies that improve education, protect property rights, and encourage investment. According to growth theory, which factor is most directly responsible for this growth?

Accepted Answer

Improvements in human capital and institutions

Question 11

Which of the following best describes the main difference between M1 and M2 as measures of the U.S. money supply?

Accepted Answer

M1 includes currency and checking deposits, while M2 includes M1 plus savings deposits and small time deposits.

Question 12

Suppose the economy is at macroeconomic equilibrium where aggregate demand equals aggregate supply. If there is a sudden increase in consumer confidence, what is the most likely short-run effect?

Accepted Answer

Aggregate demand shifts right, leading to higher output and higher prices.

Question 13

Which of the following is a key policy recommendation for promoting long-term economic growth in developing countries?

Accepted Answer

Investing in education and infrastructure

Question 14

If the Federal Reserve wants to decrease the money supply, which of the following actions should it take?

Accepted Answer

Sell government securities in the open market

Question 15

Which of the following statements about the Federal Reserve System is correct?

Accepted Answer

The Federal Reserve is responsible for conducting monetary policy in the United States.

Question 16

Suppose the economy is experiencing demand-pull inflation. Which monetary policy action is most appropriate for the Federal Reserve to take?

Accepted Answer

Decrease the money supply by selling government securities.

Question 17

Which of the following best describes the classical school of thought regarding aggregate supply?

Accepted Answer

Aggregate supply is vertical at the natural level of output, implying that changes in aggregate demand only affect prices, not output.

Question 18

A bank receives a new deposit of $5,000. If the required reserve ratio is 20%, what is the maximum amount this bank can lend out from this deposit?

Accepted Answer

$4,000

Question 19

If the velocity of money ($$V) is $$constant and the money supply ($$M) $$increases by 5%, what does the quantity theory of money predict will happen to the price level ($$P) in $$the long run, assuming real output ($$Y) is $$unchanged?

Accepted Answer

The price level will increase by 5%.

Question 20

Which of the following is an example of how banks create money in the modern economy?

Accepted Answer

By accepting deposits and making loans, thereby increasing the total amount of checkable deposits.

Macroeconomics Exam Two Study Guide: Economic Growth, Aggregate Demand & Supply, Money, and Monetary Policy

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