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Posted: July 27th, 2023

.Suppose there is a policy mix of

Macro quiz 1.Suppose there is a policy mix of expansionary monetary policy and expansionary fiscal policy. This combination of policies must cause: a.

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an increase in the interest rate (i) b. a reduction in i c.

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an increase in output (Y) d. a reduction in Y 2.Suppose the consumption equation is represented by the following: C = 100 + .75(Y-T). The multiplier in this economy is ________.

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a. 0.25 b. 2 c.

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4 d. 1.33 3.Suppose the public only hold currency (i.e. there are no banks). The demand for money is given by Money demand = $Y(0.4 - i) The nominal income is $100 and interest rate is held fixed by the central bank at 10% (or 0.1). Starting from the initial equilibrium suppose nominal income increases to $125. The increase in income will require the central bank to increase the supply of money from ________ to ________ . a.

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100; 125 b. 300; 375 c. 30; 37.5

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d. 40; 50 4.Use the following information to answer the question below. C = 1000 + .8(Y-T) I = 800 G = 1800 T = 1000 The equilibrium level of GDP for the above economy equals: a.

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10000 b. 14000 c.

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16000 d. 20000 5.Suppose a bond offers to pay $1000 in one year and currently sells for $900. Given this information, we know that the interest rate on the bond is:

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a. 9%. b. 10%.

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c. 11.1% d. 90%

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e. 110% 6.Suppose the economy is currently operating on both the LM curve and the IS curve. Given this information, we know that: a. the goods market is in equilibrium

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b. the bond market is in equilibrium c. the money market is in equilibrium d.

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financial markets are in equilibrium e. all of the above 7.The four components of national income are

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A consumption spending, savings, government purchases, net exports. B consumption spending, investment spending, government purchases, gross exports. C

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consumption spending, investment spending, tax revenue, net exports. D consumption spending, investment spending, government purchases, net exports. 8.When the central bank controls the interest rate, the aggregate demand (AD) curve is downward sloping because: a.a reduction in the money supply (M) will cause an increase in the interest rate, a reduction in investment, and a reduction in output. b. a reduction in the aggregate price level (P) will cause the central bank to reduce the interest rate and thus increase output. c. a reduction in P will cause an increase in the real wage, a reduction in employment, and a reduction in output. d. as P increases, goods and services become relatively more expensive and individuals respond by reducing the quantity demanded of goods and services. 9.Suppose there is a reduction in the price of oil. This change in the price of oil will cause which of the following in the short run? a. an increase in output

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b. a reduction in the price level c. a reduction in the interest rate d. all of the above

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e. none of the above 10.A reduction in the minimum wage will tend to cause which of the following? A an upward shift in the wage setting curve B a downward shift in the wage setting curve C

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an upward shift in the price setting curve D a downward shift in the price setting curve d none of the above

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