Question 1

Suppose the required reserve ratio 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 that can result from this deposit, assuming banks lend out all excess reserves and there are no cash leakages?

Accepted Answer

$$\9$$,000$

Question 2

Which of the following best describes how the Federal Reserve can decrease the federal funds rate?

Accepted Answer

By buying government securities in open market operations

Question 3

Which of the following is NOT a reason why different interest rates exist in the U.S. economy?

Accepted Answer

The Federal Reserve sets all interest rates directly

Question 4

The short-run aggregate supply (AS) curve is upward sloping because:

Accepted Answer

Nominal wages are sticky in the short run

Question 5

If the economy is initially at equilibrium and the government increases its spending without raising taxes, what is the most likely short-run effect on aggregate demand and output?

Accepted Answer

Aggregate demand increases and output rises

Question 6

Which of the following best explains cyclical unemployment?

Accepted Answer

It is due to fluctuations in the business cycle, such as recessions

Question 7

According to the short-run Phillips curve, what is the relationship between unemployment and inflation?

Accepted Answer

There is a negative relationship: lower unemployment is associated with higher inflation

Question 8

Which of the following statements about the long-run aggregate supply (LRAS) curve is correct?

Accepted Answer

The LRAS curve is vertical at the potential output

Question 9

During the 2008 financial crisis, which of the following contributed most directly to the collapse of the housing market?

Accepted Answer

A rapid rise in subprime mortgage defaults

Question 10

If the government runs a persistent budget deficit, which of the following is a likely long-term consequence?

Accepted Answer

An increase in the national debt

Question 11

Which of the following best describes the process of economic growth from agriculture to industry?

Accepted Answer

Labor shifts from agriculture to industry, increasing overall productivity

Question 12

Which of the following is NOT a source of long-run economic growth?

Accepted Answer

A higher rate of cyclical unemployment

Question 13

A country has a trade deficit. Which of the following must be true?

Accepted Answer

Its imports exceed its exports

Question 14

According to the theory of comparative advantage, which statement is correct?

Accepted Answer

A country should specialize in goods for which it has the lowest opportunity cost

Question 15

Which of the following is a likely effect of imposing a tariff on imported goods?

Accepted Answer

Domestic producers face less competition

Question 16

Which of the following is included in the current account of the balance of payments?

Accepted Answer

Exports and imports of goods and services

Question 17

Suppose the marginal propensity to consume (MPC) in an open economy is $$0.8$$, and the marginal propensity to import is $$0.2. $$What is the value of the open economy multiplier?

Accepted Answer

$$2.5$$

Question 18

If the Federal Reserve wants to reduce inflationary pressures, which of the following actions is most appropriate?

Accepted Answer

Raising the required reserve ratio

Question 19

If the unemployment rate is below the natural rate of unemployment, what is the likely effect on inflation in the short run?

Accepted Answer

Inflation will increase

Question 20

Which of the following best describes the equilibrium output in an open economy?

Accepted Answer

It occurs where aggregate demand equals aggregate supply, including net exports

Advanced Macroeconomics: Money, Aggregate Supply & Demand, Unemployment, Growth, and International Trade

Study Guide - Practice Questions

Study Guide - Flashcards