Understanding Economic Concepts And Money Supply Calculations

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Understanding Economic Concepts and Money Supply CalculationsQuestion 1: (1 point)The real interest rate is the nominal interest rate minus the rate of inflation.(a)True(b)FalseQuestion 2: (1 point)Aggregate demand (AD) shockscause the price level and real national income to move in the same direction.(a)True(b)FalseQuestion 3: (1 point)A government that pursues a counter cyclical fiscal policy will add purchasing power to the economy duringrecessions and reduce purchasing power in the economy when faced with inflation.(a)True(b)FalseQuestion 4: (1 point)The multiplier effect is dampened as we move from the very short run to the long run.(a)True(b)FalseQuestion 5: (1 point)The long-run aggregate supply (LRAS) corresponds to the supply curve envisioned by classical economists.(a)True(b)FalseQuestion 6: (1 point)If the economy faces a deflationary gap, then government shouldpursue an expansionary fiscal policy.(a)True(b)False

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Question 7: (1 point)The primary function of discretionary fiscal policy is to reduce unemployment or inflation.(a)True(b)FalseQuestion 8: (1 point)If thedemand for money decreased, with supply of money unchanged, the interest rate would be adjusteddownward.(a)True(b)FalseQuestion 9: (1 point)According to the business cycle theory, if consumption, investment, employment and income arerising, theeconomy is in a period of contraction.(a)True(b)FalseQuestion 10: (1 point)An increasein the domestic price level will cause the AD curve to shift to the left.(a)True(b)FalseQuestion 11: (1 point)Alarge increase in interest rates leads to decreases in capital spending.From the list below, choose ONE answer that best describes what would occur INITIALLY in thefollowing situation(s).(a)Shift to the left of the AD curve(b)Move to theright (down) along the AD curve(c)Shift to the left of the AS curve(d)Move to the left (down) along the AS curve(e)Move to the left (up) along the AD curve(f)Shift to the right of the AD curve(g)Shift to the right of the AS curve(h)Move to the right (up) along the AS curve

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Question 12: (1 point)A large fall in interest rates stimulates capital spending.From the list below, choose ONE answer that best describes what would occur INITIALLY in thefollowingsituation(s).(a)Shift to the left of the AD curve(b)Move to the right (up) along the AS curve(c)Move to the left (up) along the AD curve(d)Shift to the left of the AS curve(e)Shift to the right of the AD curve(f)Shift to theright of the AS curve(g)Move to the right (down) along the AD curve(h)Move to the left (down) along the AS curveQuestion 13: (1 point)From the list below, choosetheanswer(s) that best describes what would occur in thefollowingsituation(s).The domestic price level rises causing Canadian goods to become relatively more expensive, leadingCanadians to increase their purchases of foreign goods.(a)Shift to the right of the AS curve(b)Shift to the left ofthe AS curve(c)Move to the left (up) along the AD curve(d)Move to the right (up) along the AS curve(e)Shift to the right of the AD curve(f)Move to the right (down) along the AD curve(g)Move to the left (down) along the AS curve(h)Shift to the left of the AD curveQuestion 14: (1 point)Oil prices fall substantially, making it cheaper to produce plastics and other petroleum by-products.From the list below, choose ONE answer that best describes what would occurINITIALLY in thefollowing situation(s).(a)Shift to the left of the AS curve(b)Shift to the right of the AD curve(c)Move to the left (down) along the AS curve

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(d)Shift to the right of the AS curve(e)Shift to the left of the AD curve(f)Move to the left (up) along the AD curve(g)Move to the right (up) along the AS curve(h)Move to the right (down) along the AD curveQuestion 15: (3 points)Using the information below, answer the following questions on money:Currency outside banks: coinspaper money==1,92114,009Demand deposits=92,568Deposits at trust and mortgage loancompanies, credit unions=44,697Money market mutual fundsand deposits at otherinstitutions=11,918Personal savingdepositsand non personal noticedeposits=19,578Part 1: The value of 'M1' is:1,921+14,009+92,568 =108,498Part 2: The value of 'M2' is:M1 +19,578=128,076Part 3: The value of 'M2+' is:M2 +44,697+11,918=184,691Answer:Part 1: Thevalue of 'M1'The value of 'M1' is the sum of the most liquid forms of money in the economy, which include currency outsidebanks (coins and paper money) and demand deposits.So, the calculation is:M1=1,921+14,009+92,568=108,498M1 = 1,921 + 14,009 + 92,568 = 108,498Part 2: The value of 'M2''M2' includes 'M1' as well as savings deposits, money market mutual funds, and other types of deposits that areless liquid than those included in 'M1'. To calculate 'M2', you add personal saving deposits and non-personal noticedeposits to 'M1'.So, the calculation is:M2=M1+19,578=108,498+19,578=128,076M2 = M1 + 19,578 = 108,498 + 19,578 = 128,076Part 3: The value of 'M2+''M2+' includes 'M2' and adds deposits at trust and mortgage loan companies, credit unions, and money market

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mutual funds and deposits at other institutions.So, the calculation is:M2+=M2+44,697+11,918=128,076+44,697+11,918=184,691M2+ = M2 + 44,697 + 11,918 = 128,076 + 44,697 +11,918 = 184,691Summary of Answers:•M1 = 108,498•M2 = 128,076•M2+ =184,691Question 16: (1 point)Fill in the blanks:Changes in the marginal rates of taxation is___________Answer: discretionary changeQuestion 17: (1 point)Fill in the blanks:Unemployment insurance payments is___________Answer: built in stabilizerQuestion 18: (1 point)Fill in the blanks:The combination of inflation and a high rate of unemployment is__________Answer: supplyshockQuestion 19: (1 point)Fill in the blanks:Change in the level of investment is__________Answer: autonomous changeQuestion 20: (1 point)Fill in the blanks:Increase in consumption due to an increase in national income is____________

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