Q: Which of the following best describes the concept of the money multiplier ($$m) in $$fractional reserve banking?

$$m = \frac{1}{\text{required reserve ratio}}$$

Question 1

According to Real Business Cycle (RBC) theory, which of the following is the primary source of business cycle fluctuations?

Accepted Answer

Productivity shocks affecting the real economy

Question 2

In the Classical Model, what is the effect of an anticipated increase in the money supply on real output and employment in the long run?

Accepted Answer

There is no effect on real output or employment

Question 3

Suppose the government increases its purchases by $$\100$ billion. According to the Keynesian IS-LM model, what is the likely short-run effect on aggregate demand and output, assuming prices are sticky?

Accepted Answer

Aggregate demand and output both increase

Question 4

Which of the following best describes the efficiency wage model's explanation for unemployment?

Accepted Answer

Firms pay above-market wages to increase worker productivity, leading to involuntary unemployment

Question 5

If the required reserve ratio is $$10\%$$ and a bank receives a new deposit of $$\1$$,000$, what is the maximum possible increase in the money supply, assuming no currency drain and banks lend out all excess reserves?

Accepted Answer

$$\9$$,000$

Question 6

Which of the following is a reason for real-wage rigidity according to Keynesian theory?

Accepted Answer

Long-term labor contracts and efficiency wages

Question 7

Suppose the central bank conducts an open-market purchase of government securities. What is the immediate effect on the monetary base and the money supply?

Accepted Answer

The monetary base increases, and the money supply may increase by a multiple of the initial change

Question 8

Which of the following best describes the concept of the money multiplier ($$m) in $$fractional reserve banking?

Accepted Answer

$$m = \frac{1}{	ext{required reserve ratio}}$$

Question 9

According to the misperceptions theory, what is the effect of an unanticipated increase in the money supply on output in the short run?

Accepted Answer

Output increases temporarily

Question 10

Which of the following is an example of an automatic stabilizer in fiscal policy?

Accepted Answer

Unemployment insurance payments that rise during recessions

Question 11

If the government runs a primary deficit, which of the following must be true?

Accepted Answer

Government outlays exceed tax revenues, excluding interest payments on debt

Question 12

Which of the following best describes the Laffer Curve?

Accepted Answer

It shows the relationship between tax rates and government revenue, indicating that revenue first rises and then falls as tax rates increase

Question 13

Suppose the debt-GDP ratio in a country is rising. Which of the following is a possible implication?

Accepted Answer

The growth rate of government debt exceeds the growth rate of GDP

Question 14

Which of the following is a potential problem with discretionary monetary policy?

Accepted Answer

It can be subject to time lags and may reduce central bank credibility

Question 15

If the marginal tax rate increases while the average tax rate remains unchanged, what is the likely effect on labor supply incentives?

Accepted Answer

Labor supply incentives decrease

Question 16

Which of the following is a key difference between the Classical and Keynesian models regarding the role of prices and wages?

Accepted Answer

The Keynesian model assumes sticky prices and wages, while the Classical model assumes full flexibility

Question 17

Which of the following policies is most likely to increase central bank credibility?

Accepted Answer

Adopting a transparent and consistent policy rule

Question 18

According to Ricardian equivalence, what is the effect of a government deficit financed by borrowing on national saving?

Accepted Answer

It has no effect on national saving because private saving increases to offset the deficit

Question 19

If the Federal Reserve lowers the interest rate on reserve balances (IORB), what is the likely effect on bank lending and the money supply?

Accepted Answer

Bank lending increases and the money supply expands

Question 20

Suppose the government increases taxes to reduce a budget deficit. According to the Keynesian model, what is the likely short-run effect on aggregate demand and output?

Accepted Answer

Aggregate demand decreases, leading to lower output

Macroeconomics Final Exam Review: Classical and Keynesian Business Cycles, Monetary Policy, and Government Spending

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