Q: If the reserve requirement is 10%, what is the maximum potential increase in the money supply from a new deposit of $1,000?

$1,000 \times \frac{1}{0.1} = $10,000$

Q: Suppose the government implements a $500 billion tax cut and the marginal propensity to consume is 0.75. What is the total change in aggregate demand, assuming no crowding out?

$500 \text{ billion} \times 0.75 \times \frac{1}{1-0.75} = $1,500 \text{ billion}$

Question 1

Suppose the Federal Reserve lowers the federal funds rate. According to the monetary policy transmission mechanism, what is the most likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand will increase because lower interest rates encourage borrowing and spending.

Question 2

If the marginal propensity to consume (MPC) is 0.8, what is the value of the simple spending multiplier?

Accepted Answer

$\frac{1}{1-0.8} = 5$

Question 3

Which of the following best describes the concept of 'crowding out' in fiscal policy?

Accepted Answer

Government borrowing raises interest rates, reducing private investment.

Question 4

A country experiences a negative output gap. Which policy action is most appropriate to close the gap?

Accepted Answer

Increase government spending or cut taxes to boost aggregate demand.

Question 5

If the reserve requirement is 10%, what is the maximum potential increase in the money supply from a new deposit of $1,000?

Accepted Answer

$1,000 	imes \frac{1}{0.1} = $10,000$

Question 6

Which of the following is NOT included in the calculation of GDP using the expenditure approach?

Accepted Answer

Intermediate goods

Question 7

Suppose the economy is at full employment and the government increases spending. According to the Phillips Curve, what is the likely short-run effect?

Accepted Answer

Unemployment will fall and inflation will rise.

Question 8

If nominal GDP increases by 5% and the GDP deflator increases by 2%, what is the approximate rate of real GDP growth?

Accepted Answer

$5\% - 2\% = 3\%$

Question 9

Which of the following would cause a rightward shift in the long-run aggregate supply (LRAS) curve?

Accepted Answer

An increase in the labor force or improvements in technology

Question 10

If the unemployment rate is above the natural rate, which of the following is most likely true?

Accepted Answer

There is a negative output gap.

Question 11

Which of the following best explains why the aggregate demand curve is downward sloping?

Accepted Answer

As the price level rises, the purchasing power of money falls, reducing consumption.

Question 12

Suppose the government implements a $500 billion tax cut and the marginal propensity to consume is 0.75. What is the total change in aggregate demand, assuming no crowding out?

Accepted Answer

$500 	ext{ billion} 	imes 0.75 	imes \frac{1}{1-0.75} = $1,500 	ext{ billion}$

Question 13

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

Accepted Answer

Unemployment insurance payments that increase during a recession

Question 14

If the velocity of money is constant and the money supply increases by 10%, what does the Quantity Theory of Money predict about the long-run change in the price level, assuming real output is unchanged?

Accepted Answer

The price level will increase by 10%.

Question 15

Which of the following would be counted as part of a country's GDP?

Accepted Answer

A new house built and sold this year

Question 16

Suppose the economy is experiencing stagflation. Which combination of events is most consistent with this scenario?

Accepted Answer

Rising inflation and rising unemployment

Question 17

If the real interest rate is 3% and the expected inflation rate is 2%, what is the nominal interest rate according to the Fisher equation?

Accepted Answer

$3\% + 2\% = 5\%$

Question 18

Which of the following best describes the difference between fiscal policy and monetary policy?

Accepted Answer

Fiscal policy involves government spending and taxation, while monetary policy involves managing the money supply and interest rates.

Question 19

If a country’s exports increase while imports remain unchanged, what is the likely effect on net exports and aggregate demand?

Accepted Answer

Net exports increase and aggregate demand increases.

Question 20

Suppose the economy is in a recession and the central bank wants to stimulate economic activity. Which of the following actions is most appropriate?

Accepted Answer

Lower the discount rate.

Macroeconomics Course Schedule and Assessment Overview

Study Guide - Practice Questions

Study Guide - Flashcards