Macroeconomics, Spring 2006 Exam 3, TTh classes, several versions Show Read these Instructions carefully!� You must follow them exactly! I)� On your Scantron card you must print three things: �� 1) Print your full name clearly; �� 2) Print the day and time of your section (for example TTh 7 AM); �� 3) Print the number I have written in ink on the upper right corner of your copy of this test.� (This number tells me which version of the test you have.� Without it your test cannot be graded properly and you get no credit for your answers.)������ II)� Answer on your Scantron card, using a #2 pencil. � Warning:� SOME QUESTIONS MUST BE ANSWERED SEVERAL TIMES!� Such questions will begin with a phrase such as this:� (Repeat answer on Scantron lines 37, 38 and 39) ����������� ---Remember to do it! III) You must turn in this printed exam along with your Scantron card, otherwise ������ your score on this exam is "F". Questions: ____��������� 1.�� (Repeat your answer on Scantron line 29.)� Approximately what fraction of U.S. GDP does government purchases now represent?
____��������� 2.�� (Repeat this answer on Scantron line 30.)� If expected inflation used to be 2% per year, but recently has risen to 7% per year,
____��������� 3.�� (Repeat this answer on Scantron lines 31 and 32.)� If the Fed sells bonds in an open market operation, which of the following is most likely to occur?
____��������� 4.�� (Repeat this answer on Scantron lines 33 and 34.)� Suppose that just as the U.S. economy is heading into a recession, two major U.S. banks fail.� Many citizens lose access to their checking accounts for several weeks.� Also assume the Fed stupidly does nothing.� Evaluate each of the following statements and select the best answer.� (Refer to the money supply equation just above if this helps you.)� 1)� Reserve requirements on demand deposits and time deposits will increase.� 2)� xd or xt in the Money Supply Equation will probably increase since bankers now will fear bank runs. 3)� the public�s desired ratios of currency to demand deposits, and currency to time deposits, will increase 4) the money supply will definitely increase.
____��������� 5.�� (Repeat this answer on Scantron line 35.)� If the Fed buys Treasury bills,
____��������� 6.�� Refer to Figure 13-5. Assuming that the economy starts at point X, a decrease in world oil prices would
____��������� 7.�� (Repeat this answer on Scantron line 36.)� If Congress voted to eliminate the minimum wage, which of the following would most likely occur?
____��������� 8.�� The historical record of the Fed's success in controlling inflation has been
____��������� 9.�� Which of the following is an accurate description of the U.S. inflation rate since 1950?
____��������� 10.� (Repeat this answer on Scantron line 37.)� Refer to Figure 13-8. Suppose that the economy is at the full-employment level of output of $6 trillion.� Then a demand shock shifts aggregate demand from AD1 to AD2 , which initially increases real GDP to $6.5 trillion. In the long run, we would expect the
____��������� 11.� (Repeat this answer on Scantron lines 38 and 39.)� In our Keynesian model, if the marginal propensity to consume is 0.8, the marginal tax rate is .3, the marginal propensity to import is .06, what is the value of the multiplier?
____��������� 12.� (Repeat this answer on Scantron line 40.)� Which of the following statements are true about "the multiplier" and "autonomous spending"?
____��������� 13.� According to the text, the approximate value for the marginal propensity to consume in the U.S. is
____��������� 14.� (Repeat this answer on Scantron line 41.)� Using the AD/AS model, if there is an increase in the price of oil and the Fed wishes to maintain price stability, the Fed should
____��������� 15.� (Repeat this answer on Scantron line 42.)� If there is a large increase in the price of oil and the Fed wishes to maintain stable output, which of the following should it do?
____��������� 16.� (Repeat this answer on Scantron lines 43 and 44.)� To eliminate built-in inflation from the economy, the Fed must
____��������� 17.� The standard measure of the money stock, M1, refers to
____��������� 18.� M1 and M2 are
____��������� 19.� (Repeat this answer on Scantron line 45.)� The group within the Federal Reserve System that determines the general course for the nation's money supply is the
____��������� 20.� Which of the following is not a responsibility of the Federal Reserve?
____��������� 21.� Which of the following is an �open market purchase�?
____��������� 22.� If the required reserve ratio is 0.25 and the First National Bank holds $10 million in demand deposits and $2.5 million in reserves, how much more money is the bank capable of creating?
____��������� 23.� (Repeat this answer on Scantron line 46.)� Which statement best describes economic fluctuations?
____��������� 24.� (Repeat this answer on Scantron line 47.)� A shock to the economy is a change in
____��������� 25.� (Repeat this answer on Scantron line 48.)� Assume the economy is at full employment. Which of the following would you expect if oil prices suddenly decreased?
____��������� 26.� If we knew that the price of goods rose, on average, by 5 percent last year and by 4 percent this year, we would know
____��������� 27.� (Repeat this answer on Scantron line 49.)� Suppose that Colleen's nominal wage rate was $20 per hour in 1998, the base year for the CPI. If the CPI in 2003 was 120.0 and her nominal wage had risen to $22 per hour, what was her real wage in 2003?
____��������� 28.� (Repeat this answer on Scantron line 50.)� In which of the following situations would a person be best off in real terms?
What happens when the Fed sells government bonds?If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.
What happens when the Fed sells securities on the open market?By selling securities it is holding on its balance sheet, the Fed can extract capital from bank reserves and decrease the amount of funds banks have available to lend. Open market operations are important as it attempts to guide the direction of the economy.
What is the most likely effect when the Fed buys securities on the open market?When the Federal Reserve purchases government securities on the open market, it increases the reserves of commercial banks and allows them to increase their loans and investments; increases the price of government securities and effectively reduces their interest rates; and decreases overall interest rates, promoting ...
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If the Fed sells government bonds on the open market, which of the following is most likely to occur
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