Question 1

Which of the following best describes the Solow growth model's prediction about the long-run effect of an increase in the savings rate on the level and growth rate of output per worker?

Accepted Answer

It permanently increases the level of output per worker but not the long-run growth rate.

Question 2

Suppose the Federal Reserve conducts an open market purchase of government securities. What is the immediate effect on the monetary base and the money supply, assuming banks lend out excess reserves?

Accepted Answer

The monetary base increases and the money supply increases.

Question 3

According to the quantity theory of money, if the velocity of money ($$V) $$and real output ($$Y) $$are constant, what happens to the price level ($$P) if $$the money supply ($$M) $$doubles?

Accepted Answer

The price level doubles.

Question 4

Which of the following is NOT considered part of M1 in the United States?

Accepted Answer

Savings deposits

Question 5

If the required reserve ratio is 10% and a bank receives a new deposit of $1,000, what is the maximum amount of new loans the bank can make?

Accepted Answer

$900

Question 6

Which of the following best explains the short-run tradeoff depicted by the Phillips Curve?

Accepted Answer

A negative relationship between inflation and unemployment.

Question 7

Suppose the economy is experiencing a negative supply shock (e.g., a sudden increase in oil prices). According to the Phillips Curve, what is the likely short-run effect?

Accepted Answer

Both inflation and unemployment increase.

Question 8

Which of the following equations represents the quantity theory of money?

Accepted Answer

$$M 	imes V = P 	imes Y$$

Question 9

In growth accounting, which of the following is typically interpreted as the 'Solow residual'?

Accepted Answer

The portion of output growth not explained by capital or labor (i.e., total factor productivity).

Question 10

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 11

Which of the following best describes the long-run effect of an increase in the money supply according to the classical dichotomy?

Accepted Answer

It increases the price level but not real output.

Question 12

Which of the following is a key assumption of endogenous growth theory that distinguishes it from the Solow model?

Accepted Answer

Investment in human capital and innovation can lead to sustained growth.

Question 13

Suppose the velocity of money ($$V) is 5$$, the money supply ($$M) is$$ $$2,000, and real output (Y$) is 10$$,000. What is the price level ($$P$$)?

Accepted Answer

$$P = 2$$

Question 14

During a typical business cycle, which phase is characterized by rising real GDP, falling unemployment, and increasing inflationary pressures?

Accepted Answer

Expansion

Question 15

If banks hold no excess reserves and the required reserve ratio is 20%, what is the simple money multiplier?

Accepted Answer

5

Question 16

Which of the following is an example of a procyclical variable in the business cycle?

Accepted Answer

Real GDP

Question 17

If the economy is operating above potential output, what is the likely effect on inflation and unemployment in the short run?

Accepted Answer

Inflation rises and unemployment falls.

Question 18

Which of the following best describes the process by which commercial banks create money?

Accepted Answer

By making loans from excess reserves.

Question 19

According to the classical quantity theory of money, what is the relationship between the growth rate of the money supply and the inflation rate in the long run?

Accepted Answer

The inflation rate equals the growth rate of the money supply minus the growth rate of real GDP.

Question 20

Which of the following is a key implication of the natural rate hypothesis regarding the Phillips Curve in the long run?

Accepted Answer

The Phillips Curve is vertical at the natural rate of unemployment.

Macroeconomics Study Guide: Economic Growth, Money & Banking, Inflation & Business Cycles

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