10. If the marginal propensity to consume is 0.75 and investmentspending decreases by $20 billion. Suppose all other aggregateexpenditure components are autonomous, based on the Keynesianmodel, what will be the overall effect on GDP?
Select one:
a. GDP will decrease by $20 billion
b. GDP will increase by $15 billion
c. GDP will decrease by $80 billion
d. GDP will increase by $30 billion
e. GDP will decrease by $26.7 billion
11. One of the most serious effects of a banking panic (bankrun) is that
Select one:
a. banks will not earn as much profit
b. banks will no longer be trusted by the public
c. people will not place their excess money in bankingaccounts
d. people may lose any accrued interest on their accounts
e. large withdrawals of cash lead to a severe decrease inreserves and ultimately in the money supply
12. Suppose that the prices of dairy products have risenrelatively less than prices in general over the last several years.To which problem in the construction of the CPI is this situationmost relevant?
Select one:
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income bias
e. None of the above
13. The demand for money
Select one:
a. is the demand for bonds
b. is the demand for loans
c. increases whenever the price level falls
d. reflects the wealth or asset allocation problem that peopleface
e. shows the people always demand as much money as possible
14. A rightward shift of the economy's labor supply curve wouldresult from a(n)
Select one:
a. cut in income tax rates or an increase in welfare benefits tothe needy
b. cut in income tax rates or a cut in benefits to the needy
c. increase in income tax rates or a cut in benefits to theneedy
d. increase in income tax rates or an increase in benefits tothe needy
e. cut in income tax rates or a freeze on benefits to theneedy
15. Investment from abroad (or foreign direct investment)
Select one:
a. is a way for poor countries to learn the state-of-the-arttechnologies developed and used in richer countries
b. is viewed by economists as a way to increase growth
c. noften requires removing restrictions that governments haveimposed on foreign ownership of domestic capital
d. All of the above are correct
e. None of the above is correct
16. Countercyclical fiscal policy has a serious problem with
Select one:
a. the timing of its enactment and impact
b. the easy reversibility of policy
c. the tendency of the central bank to immediately countergovernment's action
d. the courts as it has been held to be unconstitutional
e. Presidential executive orders
17. When implementing monetary policy, the variable the FederalReserve watches most closely is the
Select one:
a. required reserve ratio
b. federal funds rate (Fed funds rate)
c. long term bond rate
d. national debt
e. short-term corporate bond rate
18. If there is a surplus of the domestic currency at afixed exchange rate,
Select one:
a. the currency will depreciate
b. the currency will appreciate
c. the country must switch to a floating exchange rate
d. the central bank must buy up that excess supply or thedomestic currency will depreciate
e. the central bank must buy up that excess supply or thedomestic currency will appreciate
19. If the central bank lowered the required reserve ratio,
Select one:
a. excess reserves would decrease
b. the money supply would decrease
c. the money supply would increase
d. banks would borrow more from the central bank
e. loans would earn more interest
