How is the new long-run equilibrium different from the original one?

1. The following table contains some production possibilities for an economy for a given month. Sweaters Gloves 20 200 18 400 16 ? If the production possibilities frontier is bowed outward, then “?” could be a. 600. b. 550. c. 650. d. 700. Figure 1 ? 2. Refer to Figure 1. A movement from point C to point D could be caused by a. unemployment. b. a decrease in society’s preference for bananas. c. fewer resources available for production of bananas. d. All of the above are correct. 3. Refer to Figure 1. If this economy moves from point A to point B, then which of the following statements is correct? a. This economy has moved from a point of inefficient production to a point of efficient production. b. This economy has experienced economic growth. c. This economy has experienced an increase in employment. d. None of the above is correct. 4. An increase in input costs to firms in a market will result in a. a decrease in equilibrium price and an increase in equilibrium quantity. b. a decrease in equilibrium price and a decrease in equilibrium quantity. c. an increase in equilibrium price and a decrease in equilibrium quantity. d. an increase in equilibrium price and an increase in equilibrium quantity. Figure 2 Panel (a) Panel (b) ?? Panel (c) Panel (d) ?? 5. Refer to Figure 2. Which of the four panels represents the market for winter coats as we progress from winter to spring? a. Panel (a) b. Panel (b) c. Panel (c) d. Panel (d) 6. Refer to Figure 2. Which of the four panels represents the market for peanut butter after a major hurricane hits the peanut-growing south (assume price of peanuts (used in production of peanut butter) increases)? a. Panel (a) b. Panel (b) c. Panel (c) d. Panel (d) 7. Which of the following events would cause both the equilibrium price and equilibrium quantity of computers (a normal good) to decrease? a. an increase in consumer income b. a decrease in consumer income c. greater government restrictions on agricultural chemicals d. fewer government restrictions on agricultural chemicals 8. In the economy of Wrexington in 2011, consumption was $10000, exports were $1000, government purchases were $2200, imports were $2000, and investment was $5500. What was Wrexington’s GDP in 2008? a. $16700 b. $19700 c. $17700 d. $18700 9. Suppose an economy produces only cranberries and maple syrup. In 2008, 100 units of cranberries are sold at $10 per unit and 50 units of maple syrup are sold at $5 per unit. In 2007, the base year, the price of cranberries was $8 per unit and the price of maple syrup was $3 per unit. For 2008, a. nominal GDP is $950, real GDP is $1250, and the GDP deflator is 76. b. nominal GDP is $1250, real GDP is $950, and the GDP deflator is 131.5. c. nominal GDP is $1250, real GDP is $950, and the GDP deflator is 76. d. nominal GDP is $950, real GDP is $1250, and the GDP deflator is 131.5. Table 1 Labor Data for Wrexington Year 2004 2005 2006 Adult population 2000 3000 3200 Number of employed 1400 1300 1600 Number of unemployed 200 600 200 10. Refer to Table 1. The unemployment rate of Wrexington in 2006 was a. 10%. b. 12.5%. c. 11.1%. d. 80%. 11. Refer to Table 1. The labor-force participation rate of Wrexington in 2004 was a. 100%. b. 70%. c. 75 %. d. 80%. 12. When the consumer price index rises, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d. can save more because they do not need to offset the effects of rising prices. 13. An american company operates an auto shop in Italy. The value of the output produced by this auto shop is included in a. U.S. GNI and Italian GNI. b. U.S. GNI and Italian GDP. c. U.S. GDP and Italian GNI. d. U.S. GDP and Italian GDP. 14. Suppose a basket of goods and services has been selected to calculate the CPI and 2004 has been chosen as the base year. In 2002, the basket’s cost was $75.00; in 2004, the basket’s cost was $79.50; and in 2006, the basket’s cost was $85.86. The value of the CPI in 2006 was a. 100. b. 108. c. 114.48 d. None of the above. 15. Which of the following changes in the price index produces the lowest rate of inflation: 80 to 100, 100 to 120, or 150 to 170? a. 80 to 100 b. 100 to 120 c. 150 to 170 d. All of these changes produce the same rate of inflation. 16. If M = 2,000, P = 1.5, and Y = 20,000, what is velocity? a. 20 b. 10 c. 15 d. 12 17. You bought some shares of stock and, over the next year, the price per share increased by 3 percent, while prices rose by 5 percent. Before taxes, you experienced a. both a nominal gain and a real gain, and you paid taxes on the nominal gain. b. both a nominal gain and a real gain, and you paid taxes only on the real gain. c. a nominal gain, a real loss, and you paid no taxes on the transaction. d. a nominal gain, a real loss, and you paid taxes on nominal gain. 18. Which of the following is a tool of monetary policy? a. open market operations b. reserve requirements c. changing the discount rate d. All of the above 19. If the nominal interest rate is 10 percent and there is an inflation rate of 4 percent, what is the real interest rate? a. 7 percent b. 6 percent c. 10 percent d. 5/6 percent 20. According to the quantity theory of money, a 2 percent increase in the money supply a. causes the price level to fall by 2 percent. b. leaves the price level unchanged. c. causes the price level to rise by less than 2 percent. d. causes the price level to rise by 2 percent. 21. The supply curve of money is vertical because the quantity of money supplied increases a. when the value of money increases. b. when the value of money decreases. c. only if people desire to hold more money. d. only if the central bank increases the money supply. 22. Liquidity refers to a. the ease with which an asset is converted to the medium of exchange. b. a measurement of the intrinsic value of commodity money. c. the suitability of an asset to serve as a store of value. d. how many time a dollar circulates in a given year. 23. Which of the following statements is correct? a. All items that are included in M1 are included also in M2. b. All items that are included in M2 are included also in M1. c. U.S bonds are included in both M1 and M2. d. Savings deposits are included in both M1 and M2. Table 2. Bank of Springfield Assets Liabilities Reserves $19,200 Deposits $240,000 Loans 228,000 24. Refer to Table 2. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement? a. 5.00 percent b. 8.00 percent c. 8.42 percent d. 95.00 percent 25. Refer to Table 2. Assuming the Bank of Springfield lent out everything it could given the level of deposits, then what is the value of the money multiplier? (hint: use required reserve ratio you found in 24) a. 5.0 b. 7.5 c. 10.00 d. 12.5 26. Refer to Table 2. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold? a. $1,200 b. $2,400 c. $2,880 d. $4,800 27. Refer to Table 2. Assume the Fed’s reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, bank holds no excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy’s money supply increase? a. $50,200 b. $72,000 c. $80,000 d. $106,000 28. If the reserve ratio for all banks is 20 percent, then $100 of new reserves can generate a. $60 of new money in the economy. b. $250 of new money in the economy. c. $500 of new money in the economy. d. $2,000 of new money in the economy. 29. To increase the money supply, the Fed could a. sell government bonds. b. increase the discount rate. c. decrease the reserve requirement. d. None of the above is correct. Figure 3 ? 30. Refer to Figure 3. Which of the following policies could explain the movement from AE1 to AE2? a. The Fed selling government bonds b. Government increasing taxes c. The Fed buying government bonds d. Government decreasing government
spending 31. Refer to Figure 3. If natural level of output= actual level of output=2000 and the economy is in equilibrium, which of the following statements is correct a. The government or the Fed should implement an expansionary policy because there is a recessionary gap b. MPC=.8 c. The aggregate expenditure is represented by AE2 d. None of the above 32. If the tax multiplier is -1.5, then the government multiplier is a. 2.5 b. -3 c. -4 d. cannot be determined because MPS is not given 33. If the government purchases increased by 1000, taxes decreased by 500 and MPC=.75, the overall effect on output is a. 2500 b. 5500 c. 4000 d. 1500 34. Suppose the economy can be characterized by the following: C=1000+.8Yd, I=800, G=160, T=200. Then the equilibrium level of output is: a. 9800 b. 10000 c. 9000 d. 11000 35. Suppose the economy can be characterized by the following: C=1000+.8Yd, I=800, G=160, T=200. If government spending increases by 250, then the equilibrium output increases by a. 1000 b. 1200 c. 900 d. 800 36. If the mpc=.9, the expenditure multiplier is a. 4 b. 5 c. 10 d. -9 37 . If Logan received a $5000 bonus and his MPS is 0.10, his consumption rises by $________ and his saving rises by $________. a. 5000; 0 b. 4000; 1000 c. 4500; 500 d. 3750; 1250 38. People choose to hold a smaller quantity of money if a. the interest rate rises, which causes the opportunity cost of holding money to rise. b. the interest rate falls, which causes the opportunity cost of holding money to rise. c. the interest rate rises, which causes the opportunity cost of holding money to fall. d. the interest rate falls, which causes the opportunity cost of holding money to fall. 39. Which of the following events would shift money demand to the right? a. an increase in the interest rate or an increase in the price level b. an increase in the interest rate, but not an increase in the price level c. an increase in the price level, but not an increase in the interest rate d. neither an increase in the interest rate nor an increase in the price level 40. In the short run, a decrease in the money supply causes interest rates to a. increase, and aggregate demand to shift right. b. increase, and aggregate demand to shift left. c. decrease, and aggregate demand to shift right. d. decrease, and aggregate demand to shift left. 41. If the Fed conducts open-market purchases (buys bonds), then which of the following quantities increase(s)? a. interest rates, prices, and investment spending b. interest rates and prices, but not investment spending c. prices and investment spending, but not interest rates d. interest rates, but not prices or investment spending Figure 4 ? a. the interest rate rises, which causes the investment to rise and that is known as the crowding-out effect. b. the interest rate falls, which causes investment to rise and that is known as the crowding-out effect. c. the interest rate rises, which causes investment to fall and that is known as the crowding-out effect. d. the interest rate falls, which causes investment to fall and that is known as the crowding-out effect. 42. Refer to figure 4. If an expansionary fiscal policy leads to money demand to shift from MD1 to MD2 then Figure 5 ? 43. Refer to Figure 5. If the economy starts at A, a decrease in the money supply moves the economy a. to C in the long run. b. to B in the long run. c. back to A in the long run. d. to D in the long run. 44. Refer to Figure 5. The economy would be moving to long-run equilibrium if it started at a. B and moved to A. b. C and moved to B. c. A and moved to B. d. None of the above is correct. 45. Refer to Figure 5. If the economy is at C and there is a rise in aggregate demand, in the short run the economy a. stays at C. b. moves to B. c. moves to A. d. moves to D. 46. Refer to Figure 5. If the economy is in long-run equilibrium, then an increase in short-run aggregate supply would move the economy from a. A to B. b. C to D. c. B to A. d. D to C 47. The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates a. the multiplier effect. b. the crowding-out effect. c. the Fisher effect. d. the wealth effect. 48. To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could a. increase the money supply by buying bonds. b. increase the money supply by selling bonds. c. decrease the money supply by buying bonds. d. increase the money supply by selling bonds. 49. Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output? a. increase taxes b. increase the money supply c. increase government expenditures d. All of the above are correct. Figure 6. ? 50. Refer to Figure 6. If the economy is at point b, a policy to restore full employment would be a. an increase in the money supply. b. a decrease in government purchases. c. an increase in taxes. d. All of the above are correct. 51. Refer to Figure 6. Which of the following is correct? a. Unemployment rises as the economy moves from point a to point b. b. Either fiscal or monetary policy could be used to move the economy from point b to point a. c. If the economy is left alone, then as the economy moves from point b to long-run equilibrium, the price level will fall farther. d. All of the above are correct. Figure 7. On the figure, MS represents money supply and MD represents money demand. ? 52. Refer to Figure 7. A shift of the money-demand curve from MD1 to MD2 could be a result of a. a decrease in taxes. b. an increase in government spending. c. an increase in the price level. d. All of the above are correct. 53. Which of the following would cause prices rise and real GDP to fall in the short run? a. Short-run aggregate supply shifts right. b. Short-run aggregate supply shifts left. c. Aggregate demand shifts right. d. Aggregate demand shifts left. The Stock Market Boom of 2014 Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. (people feel wealthier) 54. Refer to Stock Market Boom 2014. Which curve shifts and in which direction? a. aggregate demand shifts right b. aggregate demand shifts left c. aggregate supply shifts right d. aggregate supply shifts left. 55. Refer to Stock Market Boom 2014. In the short run what happens to the price level and real GDP? a. both the price level and real GDP rise. b. both the price level and real GDP fall. c. the price level rises and real GDP falls. d. the price level falls and real GDP rises. 56. Refer to Stock Market Boom 2014. What happens to the expected price level and what impact does this have on wage bargaining? a. The expected price level falls. Bargains are struck for higher wages. b. The expected price level falls. Bargains are struck for lower wages. c. The expected price level rises. Bargains are struck for higher wages. d. The expected price level rises. Bargains are struck for lower wages. 57. Refer to Stock Market Boom 2014. In the long run, the change in price expectations created by the stock market boom shifts a. long-run aggregate supply right. b. long-run aggregate supply left. c. short-run aggregate supply right. d. short-run aggregate supply left. 58. Refer to Stock Market Boom 2014. How is the new long-run equilibrium different from the original one? a. the price level and real GDP are higher b. the price level and real GDP are lower. c. the price level is higher and real GDP is the same. d. the price level is the same and real GDP is higher. Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. 59. Refer to Pessimism. Which curve shifts and in which direction? a. aggregate demand shifts right b. aggregate demand shifts left c. aggregate supply sh
ifts right. d. aggregate supply shifts left. 60. Refer to Pessimism. How is the new long-run equilibrium different from the original one? a. both price and real GDP are higher. b. both price and real GDP are lower. c. the price level is the same and GDP is lower. d. the price level is lower and real GDP is the same.

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