Q: Which of the following best describes the relationship between the current account balance and the financial account balance in the balance of payments?

$$\text{Current Account Balance} + \text{Financial Account Balance} = 0$$

Question 1

Suppose the Federal Reserve conducts an open market purchase of $10 billion in Treasury securities. If the required reserve ratio is 10%, what is the maximum possible increase in the money supply, assuming banks lend out all excess reserves and there are no currency drains? Use the simple money multiplier formula.

Accepted Answer

$100 billion

Question 2

Which of the following would cause a rightward shift in the aggregate demand (AD) curve in the United States?

Accepted Answer

A decrease in interest rates

Question 3

If the money supply grows at 8% per year and real GDP grows at 3% per year, according to the quantity theory of money, what is the predicted inflation rate?

Accepted Answer

$$8\% - 3\% = 5\%$$

Question 4

Which of the following best explains why the short-run aggregate supply (SRAS) curve is upward sloping?

Accepted Answer

Because prices of final goods and services rise faster than input prices in the short run

Question 5

A negative supply shock, such as a sudden increase in oil prices, will most likely cause which of the following in the short run?

Accepted Answer

A leftward shift of the SRAS curve, increasing the price level

Question 6

If the U.S. government runs a budget deficit, what is the likely effect on national saving and investment, according to the saving and investment equation?

Accepted Answer

National saving decreases, which may reduce domestic investment and/or net foreign investment

Question 7

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

Accepted Answer

Small-denomination time deposits

Question 8

Suppose the Federal Reserve wants to decrease aggregate demand. Which of the following actions would be most appropriate?

Accepted Answer

Conducting an open market sale of Treasury securities

Question 9

In the dynamic aggregate demand and aggregate supply model, what is the usual cause of inflation?

Accepted Answer

Total spending increasing faster than production

Question 10

Which of the following would be considered an automatic stabilizer in fiscal policy?

Accepted Answer

Unemployment insurance payments that rise during a recession

Question 11

If the U.S. dollar appreciates relative to foreign currencies, what is the likely effect on U.S. net exports?

Accepted Answer

Net exports will decrease because U.S. goods become more expensive for foreigners

Question 12

Which of the following best describes the relationship between the current account balance and the financial account balance in the balance of payments?

Accepted Answer

$$	ext{Current Account Balance} + 	ext{Financial Account Balance} = 0$$

Question 13

Which of the following is a likely effect of expansionary monetary policy in an open economy compared to a closed economy?

Accepted Answer

It is more effective in an open economy because lower interest rates also increase net exports

Question 14

Suppose the government increases its purchases by $50 billion, and the marginal propensity to consume (MPC) is 0.8. What is the total change in real GDP, assuming no crowding out or imports? Use the government purchases multiplier formula.

Accepted Answer

$$\frac{1}{1-0.8} 	imes 50 = 250$$ billion

Question 15

Which of the following would shift the short-run aggregate supply (SRAS) curve to the left?

Accepted Answer

A sudden increase in the price of oil

Question 16

If the Federal Reserve lowers the interest rate on reserve balances (IORB), what is the likely effect on the federal funds rate and aggregate demand?

Accepted Answer

The federal funds rate falls, increasing aggregate demand

Question 17

Which of the following is an example of discretionary fiscal policy?

Accepted Answer

A new law passed to increase infrastructure spending

Question 18

If the marginal propensity to consume (MPC) is 0.75, what is the value of the government spending multiplier?

Accepted Answer

$$\frac{1}{1-0.75} = 4$$

Question 19

Which of the following would most likely cause a movement along the aggregate demand curve, rather than a shift of the curve?

Accepted Answer

A change in the price level

Macroeconomics Final Exam Study Guide: Aggregate Demand, Aggregate Supply, Money, and Policy

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