Question 1

Which of the following best explains why some countries experience sustained economic growth while others do not?

Accepted Answer

Because differences in institutions, technology, and human capital affect the rate of economic growth.

Question 2

Suppose the production function for an economy is given by $$ Y = A K$$^{0.3}$$ L$$^{0.7}$$ $$, where $$Y is $$output, $$A is $$total factor productivity, $$K is $$capital, and $$L is $$labor. If $$A$$ increases by 10% while $$K$$ and $$L$$ remain constant, what happens to $$Y$$?

Accepted Answer

$$Y$$ increases by 10%.

Question 3

Which of the following is NOT a reason why the aggregate demand curve is downward sloping?

Accepted Answer

The substitution effect: as prices fall, consumers substitute away from domestic goods.

Question 4

If the U.S. experiences a technological breakthrough that increases productivity, which curve shifts and in which direction in the aggregate supply and demand model?

Accepted Answer

The long-run aggregate supply curve shifts right.

Question 5

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

Accepted Answer

Engaging in quantitative easing by purchasing long-term securities.

Question 6

Which of the following is included in the M2 measure of money in the United States but NOT in M1?

Accepted Answer

Savings deposits

Question 7

Suppose a bank receives a new deposit of $1,000 and the required reserve ratio is 10%. What is the maximum possible increase in the money supply that can result from this deposit?

Accepted Answer

$9,000

Question 8

Which of the following best describes the role of the Federal Reserve System?

Accepted Answer

It acts as the central bank, conducting monetary policy and regulating banks.

Question 9

If the aggregate demand curve shifts to the right while the short-run aggregate supply curve remains unchanged, what is the likely short-run effect on output and the price level?

Accepted Answer

Output increases and the price level increases.

Question 10

Which of the following is a key reason why the whole world is not equally rich, according to economic growth theory?

Accepted Answer

Differences in institutions, such as property rights and political stability, affect growth.

Question 11

Which of the following policies is most likely to promote long-term economic growth?

Accepted Answer

Investing in education and research & development.

Question 12

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 13

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

Accepted Answer

Aggregate supply is vertical in the long run, and output is determined by resources and technology.

Question 14

Suppose the economy is initially at long-run equilibrium. If there is a sudden increase in oil prices, what is the most likely short-run effect?

Accepted Answer

Short-run aggregate supply shifts left, decreasing output and increasing prices.

Question 15

Which of the following is NOT a function of money?

Accepted Answer

Source of government revenue

Question 16

If the velocity of money ($$V) is $$constant, the money supply ($$M) $$grows at 5% per year, and real GDP ($$Y) $$grows at 2% per year, what is the implied inflation rate according to the quantity theory of money ($$MV = PY$$)?

Accepted Answer

3%

Question 17

Which of the following best describes how banks create money?

Accepted Answer

By making loans that create new deposits.

Question 18

If the Federal Reserve lowers the federal funds rate, what is the most likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand increases because borrowing becomes cheaper.

Question 19

Which of the following is a direct tool of monetary policy used by the Federal Reserve?

Accepted Answer

Open market operations.

Question 20

Suppose the economy is experiencing high unemployment and low inflation. According to Keynesian theory, which policy would be most effective in restoring full employment?

Accepted Answer

Increase the money supply to lower interest rates.

Macroeconomics: Economic Growth, Aggregate Demand & Supply, Money, and Monetary Policy

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