eco 100 macro review mc
1 ECONOMICS 100 MACROECONOMICS REVIEW SPRING 2012 Almost all of the following questions have appeared on final exams. Trade sometimes appears as a question in the Macro portion of the exam, so there are some questions on that topic here too. Answers are provided on the last page. As suggested in the preamble to the Micro Review, you might consider trying these questions, without peeking at answers, in 70 minutes. If you are going to do that, wait until we have covered the foreign exchange market in the final lectures.
1.
Consider the aggregate expenditure (AE) model with a stable price level. Suppose that an economy is in equilibrium initially. If interest rates increase, then: a. b. c. d. e.
2.
the government will automatically increase its expenditures, which will lead to an increase in real GDP the aggregate expenditure function will shift upward and real GDP will rise the aggregate expenditure function will shift downward and real GDP will fall consumption expenditures will rise and investment expenditures will fall, thereby leaving real GDP unchanged investment expenditures will fall, but this will induce a rise in consumption expenditures so that the overall fall in income is less than the initial fall in investment.
Which of the following will cause the aggregate demand (AD) curve to shift to the right in the current period? a. b. c. d. e.
a permanent increase in interest rates (at a given price level) an increase in government transfer payments to residents an increase in taxes a decrease in government spending on goods a decrease in the money supply.
2 3.
The impact of monetary policy on real output (or real GDP) will be greater, the: a. b. c. d. e.
4.
Consider the Keynesian constant price model with a money market. A tax cut in Canada, with a flexible foreign exchange rate, will cause: a. b. c. d. e.
5.
flatter the demand for money (or LP = Liquidity Preference) curve and the investment demand (or MEI = Marginal Efficiency of Investment) curve steeper the demand for money (or LP) curve and the investment demand (or MEI) curve flatter the demand for money (or LP) curve and the steeper the investment demand (or MEI) curve steeper the demand for money (or LP) curve and the flatter the investment demand (or MEI) curve steeper the demand for money curve (or LP) and the flatter the aggregate expenditure curve.
a decrease in the interest rate, which will lead to an increase in the Canadian price of the U.S. dollar (i.e. decrease in US price of Canadian Dollar) a decrease in the interest rate, which will lead to an decrease in the Canadian price of the U.S. dollar (i.e. increase in US price of Canadian Dollar) an increase in the interest rate, which will lead to an increase in the Canadian price of the U.S. dollar (i.e. decrease in US price of Canadian Dollar) an increase in the interest rate, which will lead to a decrease in the Canadian price of the U.S. dollar (i.e. increase in US price of Canadian Dollar) no change in the interest rate.
We observe an increase in the price level and a decrease in real GDP. Which of the following is a possible explanation? a. b. c. d. e.
the demand for investment goods (or MEI) has increased aggregate expenditure has decreased the price of raw materials has increased the stock of capital has increased the money supply has increased.
3 6.
A household can: a. b. c. d. e.
7.
When the Canadian dollar value of foreign exchange rises (i.e., the Canadian dollar falls relative to the value of foreign currencies), all else constant: a. b. c. d. e.
8.
the demand for Canadian exports will rise the demand for Canadian exports will fall the demand for Canadian exports will be unaffected the Bank of Canada is obligated by law to buy dollars the Bank of Canada is obligated by law to sell dollars.
If real GDP is not at its equilibrium value: a. b. c. d. e.
9.
only consume or pay taxes out of disposable income only consume, save, or pay taxes out of disposable income only consume or save out of disposable income only consume out of disposable income do none of the above.
government intervention is necessary to make sure that real GDP changes in the correct direction real GDP will change until it reaches an equilibrium level at the capacity output level of the economy there must be excessive inflation in the economy there must be excessive unemployment in the economy there will always be a tendency for GDP to change until planned expenditures equal real GDP.
If the marginal propensity to consume out of real GDP is 0.75, and the marginal propensity to import is 0.10, then the marginal propensity to spend on domestic output out of real GDP is: a. b. c. d. e.
0.50 0.65 0.15 0.45 0.85
4 10.
In an economy where real GDP is at the equilibrium level and prices are stable, there is significant unemployment in the economy. Which one of the following statements is true if the government were to increase taxes by $10 million and were to use these funds to increase government expenditures on domestically produced goods? a. b. c. d. e.
11.
A rightward shift in the aggregate demand (AD) curve could be caused by all of the following EXCEPT: a. b. c. d. e.
12.
a decrease in imports a decrease in tax rates an increase in exports an increase in the price level a decrease in the rate of interest.
Suppose that investment increases by $10 billion. Which of the following would reduce the effect of this increase in autonomous expenditure on equilibrium real GDP? a. b. c. d. e.
13.
there will be no change in the level of GDP there will be a decrease in consumption the autonomous level of exports will increase there will be an increase in the level of GDP the aggregate demand curve will shift to the left.
an increase in the marginal propensity to consume a decrease in the marginal propensity to import a decrease in the marginal tax rate a steeper aggregate supply curve a flatter aggregate supply curve.
Consider a simple economy, where there are no taxes and no transfer payments, and the marginal propensity to consume out of disposable income is 0.75, and that marginal propensity to import is 0.25. Suppose that investment is autonomous and rises by $100. As a result, equilibrium income will rise, with the components of the rise consisting of a rise in investment of $ and a rise in consumption of domestic goods of $ . a. b. c. d. e.
100 100 50 100 0
200 100 150 150 200
5 14.
"Gains from trade" means that: a. b. c. d. e.
15.
International trade according to comparative advantage allows each country to consume by comparison with its before-trade consumption: a. b. c. d. e.
16.
more of the goods it exports but less of the goods it imports more of the goods it imports but less of the goods it exports more of both goods it exports and goods it imports less of both goods it exports and goods it imports none of the above.
If government revenue exceeds government spending (including transfer payments), the federal government's budget balance is , and the government has a budget . a. b. c. d. e.
17.
both countries have eliminated their economic problems one country gains while another country loses both countries gain by expanding their production possibility frontier both countries see the prices going down for both goods both countries gain by consuming beyond their production possibility frontier.
negative; deficit positive; surplus positive; deficit negative; surplus zero; deficit
All else the same, as the economy enters a recession: a. b. c. d.
tax receipts tend to rise and interest payments on the public debt tend to rise tax receipts and government transfer payments tend to rise interest payments on the public debt and tax receipts both tend to fall government transfer payments tend to rise and tax receipts tend to fall .
Hint: Consider a Tax function of the form T = lst +tY, where lst = lump sum taxes (autonomous taxes) and t = “marginal propensity to tax” = ∆T/∆Y.
6 18.
Which of the following statements is correct for the term `net investment'? a. b. c. d. e.
19.
Which of the following events will not cause an appreciation of a country’s currency (in a flexible exchange rate market)? a. b. c. d. e.
20.
paving of old roads sale of new cars sale of bonds imports of motorcycles all of the above are included.
Disposable income equals (a) (b) (c) (d) (e)
1
more tourists visit the country subsidiaries in the country remit higher profits to non-resident parent companies exports increase the country receives a higher capital inflow because of greater foreign direct investment none of the above.
Under the final goods and services approach, Gross Domestic Product does not include1 (a) (b) (c) (d) (e)
21.
net investment may be negative net investment represents the total increase in housing, nonresidential construction and machinery and equipment produced in a country in one year net investment equals replacement investment net investment equals gross investment none of the above is correct.
net domestic income - income taxes personal income - income taxes consumption + personal saving all of the above both (b) and (c).
One of the answers is clearly a good one that fits the question as written. Another answer might be argued to be correct as well. The ambiguity arises from the use of the word “include”. Some would read that to mean “added in”, but it could be viewed as meaning “taken into account”. It is the latter version that will get you the answer shown in the solutions at the end of this document.
7 You have the following data for an economy. These data apply to questions 22 and 23. Consumption Corporate income taxes Depreciation (capital consumption allowance) Exports Government expenditure on goods and services Gross investment Imports Indirect taxes minus subsidies Personal income taxes Transfer payments to households Undistributed corporate profits 22.
In this economy, Gross Domestic Product is (a) 345 (b) 390 (c) 405 (d) 460 (e) none of the above.
23.
In this economy, Net Domestic Income is (a) (b) (c) (d) (e)
24.
270 10 45 55 55 80 70 35 60 80 15
250 295 310 390 none of the above.
Suppose that a firm sells its output for $85,000. It pays $50,000 in wages and salaries, $25,000 for materials and services that it obtains from other firms, and it has a profit of $10,000. Value added in this firm is (a) (b) (c) (d) (e)
$85,000 $75,000 $60,000 $50,000 $35,000.
8 25.
When unplanned inventory reduction is large, we can conclude that (a) (b) (c) (d) (e)
26.
In a closed economy and in the absence of an income tax, if the marginal propensity to consume out of disposable income (MPCYd) is 0.8, the (autonomous aggregate expenditure or spending) multiplier is (a) (b) (c) (d) (e)
27.
1 2 5 10 none of the above.
The value of the (spending) multiplier would increase if (a) (b) (c) (d) (e)
28.
imports are greater than exports desired investment is greater than actual investment GDP is greater than its equilibrium level GDP is less than its equilibrium level both (b) and (d).
exports, which are determined autonomously, increased the marginal propensity to import increased autonomous consumption increased the tax rate decreased all of the above.
The aggregate expenditure curve (AE) would shift up if there were (a) (b) (c) (d) (e)
a decrease in imports an increase in autonomous consumption an increase in government expenditure an increase in autonomous investment all of the above.
9 29.
An increase in the tax rate would (a) (b) (c) (d)
30.
Suppose that the Bank of Canada sells government bonds on the open market. As a result one can expect (a) (b) (c) (d) (e)
31.
cause the vertical intercept of the aggregate expenditure curve (AE) to shift up, leaving its slope unchanged make the slope of the aggregate expenditure curve (AE) flatter, leaving its vertical intercept unchanged make the slope of the aggregate expenditure curve (AE) steeper, leaving its vertical intercept unchanged cause the vertical intercept of the aggregate expenditure curve (AE) to shift up and its slope to become steeper.
that both the price of bonds and interest rates will rise that the price of bonds will rise, and interest rates will fall a decrease in the money supply an increase in the money supply both (b) and (d).
Which of the following would be likely to cause the Canadian dollar to depreciate relative to the West German mark? (a) (b) (c) (d) (e)
inflation in Germany, with price stability in Canada an decrease in German interest rate inflation in Canada, with stability in Germany both (a) and (b) none of the above. [Note: The above question comes from the pre-Euro era!]
32.
A central bank decreases the money supply through open market operations, leading to a change in the rate of interest and GDP. As a result, we expect that (a) (b) (c) (d) (e)
imports will decrease and the rate of interest will rise imports will decrease and the rate of interest will fall imports will increase and the rate of interest will rise imports will increase and the rate of interest will fall none of the above will occur.
10 33.
An increase in government expenditure is more effective in increasing GDP when it is financed by (a) (b) (c) (d) (e)
34.
An increase in the supply of money means that a) b) c) d) e)
35.
the labour force decreases due to many retirements wages rise for all occupational groups there is an increase in the price of an input used in many industries technology advances (e.g., information technology) none of the above.
Assuming that tax rates have not changed, if the slope of the consumption function increases, a. b. c. d. e.
37.
the aggregate demand (AD) curve will shift to the right the aggregate demand curve will shift to the left the aggregate supply (SRAS) curve will shift to the right the aggregate supply curve will shift to the left there will be movement down the existing aggregate demand schedule.
The short run aggregate supply curve (SRAS) will increase if a) b) c) d) e)
36.
raising taxes selling Government Bonds to the general public selling Government Bonds to the Central Bank selling Government Bonds to the Commercial Banks both (c) and (d).
the slope of the saving function has increased too the marginal propensity to save has fallen the multiplier has become smaller the average propensity to save has increased none of the above.
If the Bank of Canada sells government securities in the open market, then: a. b. c. d. e.
the investment demand (or MEI) curve will shift to the right real GDP will rise there will be an increase in investment expenditures there will be a decrease in investment expenditures the interest rate will fall
11
38.
A decrease in chartered bank reserves could be caused by a. b. c. d. e.
39.
a decision by households to hold less currency an increase in desired reserves the sale of government bonds by the Bank of Canada a decrease in the bank rate the purchase of government bonds by the Bank of Canada
Which of the following would not directly cause the Liquidity Preference Schedule (i.e., demand for money schedule, L) to shift? a) b) c) d) e)
An increase in the rate of interest An increase in the Transactions Demand for Money (Lt) A decrease in the Precautionary Demand for Money (Lp) An increase in the price level of all goods All of the above shift L.
40. In the Macro model with money, the following combination of interest elasticities for the demand for money and investment demand generates the most effective monetary policy: a) b) c) d) e)
low; high high; low low; low high; high infinite; zero.
12 ECONOMICS 100 MACRO REVIEW ANSWERS 1. 2. 3. 4. 5.
C B D D C
21. 22. 23. 24. 25.
E B C C E
6. 7. 8. 9. 10.
C A E B D
26. 27. 28. 29. 30.
C D E B C
11. 12. 13. 14. 15.
D D B E C
31. 32. 33. 34. 35.
C A C A D
16. 17. 18. 19. 20.
B D A B C
36. 37. 38. 39. 40.
B D C A A
1.
Consider the aggregate expenditure (AE) model with a stable price level. Suppose that an economy is in equilibrium initially. If interest rates increase, then: a. b. c. d. e.
2.
the government will automatically increase its expenditures, which will lead to an increase in real GDP the aggregate expenditure function will shift upward and real GDP will rise the aggregate expenditure function will shift downward and real GDP will fall consumption expenditures will rise and investment expenditures will fall, thereby leaving real GDP unchanged investment expenditures will fall, but this will induce a rise in consumption expenditures so that the overall fall in income is less than the initial fall in investment.
Which of the following will cause the aggregate demand (AD) curve to shift to the right in the current period? a. b. c. d. e.
a permanent increase in interest rates (at a given price level) an increase in government transfer payments to residents an increase in taxes a decrease in government spending on goods a decrease in the money supply.
2 3.
The impact of monetary policy on real output (or real GDP) will be greater, the: a. b. c. d. e.
4.
Consider the Keynesian constant price model with a money market. A tax cut in Canada, with a flexible foreign exchange rate, will cause: a. b. c. d. e.
5.
flatter the demand for money (or LP = Liquidity Preference) curve and the investment demand (or MEI = Marginal Efficiency of Investment) curve steeper the demand for money (or LP) curve and the investment demand (or MEI) curve flatter the demand for money (or LP) curve and the steeper the investment demand (or MEI) curve steeper the demand for money (or LP) curve and the flatter the investment demand (or MEI) curve steeper the demand for money curve (or LP) and the flatter the aggregate expenditure curve.
a decrease in the interest rate, which will lead to an increase in the Canadian price of the U.S. dollar (i.e. decrease in US price of Canadian Dollar) a decrease in the interest rate, which will lead to an decrease in the Canadian price of the U.S. dollar (i.e. increase in US price of Canadian Dollar) an increase in the interest rate, which will lead to an increase in the Canadian price of the U.S. dollar (i.e. decrease in US price of Canadian Dollar) an increase in the interest rate, which will lead to a decrease in the Canadian price of the U.S. dollar (i.e. increase in US price of Canadian Dollar) no change in the interest rate.
We observe an increase in the price level and a decrease in real GDP. Which of the following is a possible explanation? a. b. c. d. e.
the demand for investment goods (or MEI) has increased aggregate expenditure has decreased the price of raw materials has increased the stock of capital has increased the money supply has increased.
3 6.
A household can: a. b. c. d. e.
7.
When the Canadian dollar value of foreign exchange rises (i.e., the Canadian dollar falls relative to the value of foreign currencies), all else constant: a. b. c. d. e.
8.
the demand for Canadian exports will rise the demand for Canadian exports will fall the demand for Canadian exports will be unaffected the Bank of Canada is obligated by law to buy dollars the Bank of Canada is obligated by law to sell dollars.
If real GDP is not at its equilibrium value: a. b. c. d. e.
9.
only consume or pay taxes out of disposable income only consume, save, or pay taxes out of disposable income only consume or save out of disposable income only consume out of disposable income do none of the above.
government intervention is necessary to make sure that real GDP changes in the correct direction real GDP will change until it reaches an equilibrium level at the capacity output level of the economy there must be excessive inflation in the economy there must be excessive unemployment in the economy there will always be a tendency for GDP to change until planned expenditures equal real GDP.
If the marginal propensity to consume out of real GDP is 0.75, and the marginal propensity to import is 0.10, then the marginal propensity to spend on domestic output out of real GDP is: a. b. c. d. e.
0.50 0.65 0.15 0.45 0.85
4 10.
In an economy where real GDP is at the equilibrium level and prices are stable, there is significant unemployment in the economy. Which one of the following statements is true if the government were to increase taxes by $10 million and were to use these funds to increase government expenditures on domestically produced goods? a. b. c. d. e.
11.
A rightward shift in the aggregate demand (AD) curve could be caused by all of the following EXCEPT: a. b. c. d. e.
12.
a decrease in imports a decrease in tax rates an increase in exports an increase in the price level a decrease in the rate of interest.
Suppose that investment increases by $10 billion. Which of the following would reduce the effect of this increase in autonomous expenditure on equilibrium real GDP? a. b. c. d. e.
13.
there will be no change in the level of GDP there will be a decrease in consumption the autonomous level of exports will increase there will be an increase in the level of GDP the aggregate demand curve will shift to the left.
an increase in the marginal propensity to consume a decrease in the marginal propensity to import a decrease in the marginal tax rate a steeper aggregate supply curve a flatter aggregate supply curve.
Consider a simple economy, where there are no taxes and no transfer payments, and the marginal propensity to consume out of disposable income is 0.75, and that marginal propensity to import is 0.25. Suppose that investment is autonomous and rises by $100. As a result, equilibrium income will rise, with the components of the rise consisting of a rise in investment of $ and a rise in consumption of domestic goods of $ . a. b. c. d. e.
100 100 50 100 0
200 100 150 150 200
5 14.
"Gains from trade" means that: a. b. c. d. e.
15.
International trade according to comparative advantage allows each country to consume by comparison with its before-trade consumption: a. b. c. d. e.
16.
more of the goods it exports but less of the goods it imports more of the goods it imports but less of the goods it exports more of both goods it exports and goods it imports less of both goods it exports and goods it imports none of the above.
If government revenue exceeds government spending (including transfer payments), the federal government's budget balance is , and the government has a budget . a. b. c. d. e.
17.
both countries have eliminated their economic problems one country gains while another country loses both countries gain by expanding their production possibility frontier both countries see the prices going down for both goods both countries gain by consuming beyond their production possibility frontier.
negative; deficit positive; surplus positive; deficit negative; surplus zero; deficit
All else the same, as the economy enters a recession: a. b. c. d.
tax receipts tend to rise and interest payments on the public debt tend to rise tax receipts and government transfer payments tend to rise interest payments on the public debt and tax receipts both tend to fall government transfer payments tend to rise and tax receipts tend to fall .
Hint: Consider a Tax function of the form T = lst +tY, where lst = lump sum taxes (autonomous taxes) and t = “marginal propensity to tax” = ∆T/∆Y.
6 18.
Which of the following statements is correct for the term `net investment'? a. b. c. d. e.
19.
Which of the following events will not cause an appreciation of a country’s currency (in a flexible exchange rate market)? a. b. c. d. e.
20.
paving of old roads sale of new cars sale of bonds imports of motorcycles all of the above are included.
Disposable income equals (a) (b) (c) (d) (e)
1
more tourists visit the country subsidiaries in the country remit higher profits to non-resident parent companies exports increase the country receives a higher capital inflow because of greater foreign direct investment none of the above.
Under the final goods and services approach, Gross Domestic Product does not include1 (a) (b) (c) (d) (e)
21.
net investment may be negative net investment represents the total increase in housing, nonresidential construction and machinery and equipment produced in a country in one year net investment equals replacement investment net investment equals gross investment none of the above is correct.
net domestic income - income taxes personal income - income taxes consumption + personal saving all of the above both (b) and (c).
One of the answers is clearly a good one that fits the question as written. Another answer might be argued to be correct as well. The ambiguity arises from the use of the word “include”. Some would read that to mean “added in”, but it could be viewed as meaning “taken into account”. It is the latter version that will get you the answer shown in the solutions at the end of this document.
7 You have the following data for an economy. These data apply to questions 22 and 23. Consumption Corporate income taxes Depreciation (capital consumption allowance) Exports Government expenditure on goods and services Gross investment Imports Indirect taxes minus subsidies Personal income taxes Transfer payments to households Undistributed corporate profits 22.
In this economy, Gross Domestic Product is (a) 345 (b) 390 (c) 405 (d) 460 (e) none of the above.
23.
In this economy, Net Domestic Income is (a) (b) (c) (d) (e)
24.
270 10 45 55 55 80 70 35 60 80 15
250 295 310 390 none of the above.
Suppose that a firm sells its output for $85,000. It pays $50,000 in wages and salaries, $25,000 for materials and services that it obtains from other firms, and it has a profit of $10,000. Value added in this firm is (a) (b) (c) (d) (e)
$85,000 $75,000 $60,000 $50,000 $35,000.
8 25.
When unplanned inventory reduction is large, we can conclude that (a) (b) (c) (d) (e)
26.
In a closed economy and in the absence of an income tax, if the marginal propensity to consume out of disposable income (MPCYd) is 0.8, the (autonomous aggregate expenditure or spending) multiplier is (a) (b) (c) (d) (e)
27.
1 2 5 10 none of the above.
The value of the (spending) multiplier would increase if (a) (b) (c) (d) (e)
28.
imports are greater than exports desired investment is greater than actual investment GDP is greater than its equilibrium level GDP is less than its equilibrium level both (b) and (d).
exports, which are determined autonomously, increased the marginal propensity to import increased autonomous consumption increased the tax rate decreased all of the above.
The aggregate expenditure curve (AE) would shift up if there were (a) (b) (c) (d) (e)
a decrease in imports an increase in autonomous consumption an increase in government expenditure an increase in autonomous investment all of the above.
9 29.
An increase in the tax rate would (a) (b) (c) (d)
30.
Suppose that the Bank of Canada sells government bonds on the open market. As a result one can expect (a) (b) (c) (d) (e)
31.
cause the vertical intercept of the aggregate expenditure curve (AE) to shift up, leaving its slope unchanged make the slope of the aggregate expenditure curve (AE) flatter, leaving its vertical intercept unchanged make the slope of the aggregate expenditure curve (AE) steeper, leaving its vertical intercept unchanged cause the vertical intercept of the aggregate expenditure curve (AE) to shift up and its slope to become steeper.
that both the price of bonds and interest rates will rise that the price of bonds will rise, and interest rates will fall a decrease in the money supply an increase in the money supply both (b) and (d).
Which of the following would be likely to cause the Canadian dollar to depreciate relative to the West German mark? (a) (b) (c) (d) (e)
inflation in Germany, with price stability in Canada an decrease in German interest rate inflation in Canada, with stability in Germany both (a) and (b) none of the above. [Note: The above question comes from the pre-Euro era!]
32.
A central bank decreases the money supply through open market operations, leading to a change in the rate of interest and GDP. As a result, we expect that (a) (b) (c) (d) (e)
imports will decrease and the rate of interest will rise imports will decrease and the rate of interest will fall imports will increase and the rate of interest will rise imports will increase and the rate of interest will fall none of the above will occur.
10 33.
An increase in government expenditure is more effective in increasing GDP when it is financed by (a) (b) (c) (d) (e)
34.
An increase in the supply of money means that a) b) c) d) e)
35.
the labour force decreases due to many retirements wages rise for all occupational groups there is an increase in the price of an input used in many industries technology advances (e.g., information technology) none of the above.
Assuming that tax rates have not changed, if the slope of the consumption function increases, a. b. c. d. e.
37.
the aggregate demand (AD) curve will shift to the right the aggregate demand curve will shift to the left the aggregate supply (SRAS) curve will shift to the right the aggregate supply curve will shift to the left there will be movement down the existing aggregate demand schedule.
The short run aggregate supply curve (SRAS) will increase if a) b) c) d) e)
36.
raising taxes selling Government Bonds to the general public selling Government Bonds to the Central Bank selling Government Bonds to the Commercial Banks both (c) and (d).
the slope of the saving function has increased too the marginal propensity to save has fallen the multiplier has become smaller the average propensity to save has increased none of the above.
If the Bank of Canada sells government securities in the open market, then: a. b. c. d. e.
the investment demand (or MEI) curve will shift to the right real GDP will rise there will be an increase in investment expenditures there will be a decrease in investment expenditures the interest rate will fall
11
38.
A decrease in chartered bank reserves could be caused by a. b. c. d. e.
39.
a decision by households to hold less currency an increase in desired reserves the sale of government bonds by the Bank of Canada a decrease in the bank rate the purchase of government bonds by the Bank of Canada
Which of the following would not directly cause the Liquidity Preference Schedule (i.e., demand for money schedule, L) to shift? a) b) c) d) e)
An increase in the rate of interest An increase in the Transactions Demand for Money (Lt) A decrease in the Precautionary Demand for Money (Lp) An increase in the price level of all goods All of the above shift L.
40. In the Macro model with money, the following combination of interest elasticities for the demand for money and investment demand generates the most effective monetary policy: a) b) c) d) e)
low; high high; low low; low high; high infinite; zero.
12 ECONOMICS 100 MACRO REVIEW ANSWERS 1. 2. 3. 4. 5.
C B D D C
21. 22. 23. 24. 25.
E B C C E
6. 7. 8. 9. 10.
C A E B D
26. 27. 28. 29. 30.
C D E B C
11. 12. 13. 14. 15.
D D B E C
31. 32. 33. 34. 35.
C A C A D
16. 17. 18. 19. 20.
B D A B C
36. 37. 38. 39. 40.
B D C A A
