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Understanding Economic Concepts And Money Supply Calculations

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    Understanding Economic Concepts and Money Supply Calculations Question 1: (1 point) The real interest rate is the nominal interest rate minus the rate of inflation. (a) True (b) False Question 2: (1 point) Aggregate demand (AD) shocks cause the price level and real national income to move in the same direction. (a) True (b) False Question 3: (1 point) A government that pursues a counter cyclical fiscal policy will add purchasing power to the economy during recessions and reduce purchasing power in the economy when faced with inflation. (a) True (b) False Question 4: (1 point) The multiplier effect is dampened as we move from the very short run to the long run. (a) True (b) False Question 5: (1 point) The long - run aggregate supply (LRAS) corresponds to the supply curve envisioned by classical economists. (a) True (b) False Question 6: (1 point) If the economy faces a deflationary gap, then government should pursue 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) False Question 8: (1 point) If the demand for money decreased, with supply of money unchanged, the interest rate would be adjusted downward. (a) True (b) False Question 9: (1 point) According to the business cycle theory, if consumption, investment, employment and income are rising, the economy is in a period of contraction. (a) True (b) False Question 10: (1 point) An increase in the domestic price level will cause the AD curve to shift to the left. (a) True (b) False Question 11: (1 point) A large 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 the following situation(s). (a) Shift to the left of the AD curve (b) Move to the right (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 the following situation(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 the right of the AS curve (g) Move to the right (down) along the AD curve (h) Move to the left (down) along the AS curve Question 13: (1 point) From the list below, choose the answer(s) that best describes what would occur in the following situation(s). The domestic price level rises causing Canadian goods to become relatively more expensive, leading Canadians to increase their purchases of foreign goods. (a) Shift to the right of the AS curve (b) Shift to the left of the 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 curve Question 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 occur INITIALLY in the following 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 curve Question 15: (3 points) Using the information below, answer the following questions on money: Currency outside banks: coins paper money = = 1,921 14,009 Demand deposits = 92,568 Deposits at trust and mortgage loan companies, credit unions = 44,697 Money market mutual funds and deposits at other institutions = 11,918 Personal saving deposits and non personal notice deposits = 19,578 Part 1: The value of 'M1' is: 1,921+14,009+92,568 = 108 , 498 Part 2: The value of 'M2' is: M1 + 19,578 = 128 , 076 Part 3: The value of 'M2+' is: M2 + 44,697 + 11,918 = 184 , 691 Answer: Part 1: The value of 'M1' The value of 'M1' is the sum of the most liquid forms of money in the economy, which include currency outside banks (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 = 108,498 Part 2: The value of 'M2' 'M2' includes 'M1' as well as savings deposits, money market mutual funds, and other types of deposits that are less liquid than those included in 'M1'. To calculate 'M2', you add personal saving deposits and non - personal notice deposits to 'M1'. So, the calculation is: M2=M1+19,578=108,498+19,578=128,076M2 = M1 + 19,578 = 108,498 + 19,578 = 128,076 Part 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 = 184,691 Summary of Answers: • M1 = 108,498 • M2 = 128,076 • M2+ = 184,691 Question 16: (1 point) Fill in the blanks: Changes in the marginal rates of taxation is ___________ Answer: discretionary change Question 17: (1 point) Fill in the blanks: Unemployment insurance payments is ___________ Answer: built in stabilizer Question 18: (1 point) Fill in the blanks: The combination of inflation and a high rate of unemployment is __________ Answer: supply shock Question 19: (1 point) Fill in the blanks: Change in the level of investment is __________ Answer: autonomous change Question 20: (1 point) Fill in the blanks: Increase in consumption due to an increase in national income is ____________

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