1. Jordan has the following assets and liabilities:


Jordan's wealth is _____, the value of Jordan's assets is _____ and the value of Jordan's liability is _____. 
A. $107,000; $213,000; $100,000
B. $109,000; $213,000; $104,000
C. $111,000; $213,000; $100,000
D. $213,000; $317,000; $104,000


2. Steve has accumulated an outstanding debt on his credit card because of overspending during last Christmas.  This month he uses $300 from his paycheck to pay off his credit card balance. We can conclude that: 
A. Steve's saving has increased by $300.
B. Steve's saving has decreased by $300.
C. Steve's wealth is unchanged.
D. Steve has a capital loss of $300.


3. The large increase in household wealth in the United States in the 1990s was the result of: 
A. a high saving rate.
B. a low saving rate.
C. large capital gains.
D. high rates of inflation.


4. If consumption spending increases by $10 million with no changes in net taxes, then: 
A. public saving increases.
B. public saving decreases.
C. private saving increases.
D. private saving decreases.



5. These data are available for Econland:


Public saving in Econland equals: 
A. -5
B. 5
C. 16
D. 17


6. To the extent that households are target savers, who save to reach a specific goal, an increase in the interest rate _____ household saving. 
A. increases
B. decreases
C. does not affect
D. may increase, decrease, or not affect.


7. The introduction of a new technology that raises the marginal product of new capital will: 
A. decrease real interest rates and increase the equilibrium quantity of saving supplied and demanded.
B. decrease real interest rates and the equilibrium quantity of saving supplied and demanded.
C. increase real interest rates and the equilibrium quantity of saving supplied and demanded.
D. increase real interest rates and decrease the equilibrium quantity of saving supplied and demanded.


8. Which of the following policies could be expected to increase private saving? 
A. replace the income tax with a consumption tax.
B. increase the tax rate on capital gains.
C. provide more generous Social Security retirement benefits.
D. reduce the size of down payments needed to buy a house.


9. A three-year bond with a principal amount of $5,000, a 3% coupon rate paid annually, one year from maturity will sell for what price (rounded to the nearest dollar) in the bond market if interest rates are 5%? 
A. $4,762
B. $4,905
C. $5,000
D. $5,150


10. You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2 dividend per share in one year. What should you pay (rounded to the nearest dollar) for the stock today if you require an 5% return and a 3% risk premium on your investment? 
A. $60
B. $62
C. $67
D. $64


11. The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal _____. 
A. 200
B. 250
C. 500
D. 800


12. You originally required a risk premium of 6 percent in addition to the rate of return on safe assets before you would purchase shares of Techno Company stock. If you and other investors reduce the risk premium you require to 3 percent, the price of Techno Company stock will: 
A. increase.
B. decrease.
C. remain the same.
D. increase, decrease or remain the same based on the current stock price.

E. there isn’t enough information to answer the question.


13. The value of the Money Multiplier is: 
A. 1/(1-mpc), where mpc = marginal propensity to consume

B. 1/mps, where mps = marginal propensity to save
C. 1/t where t is the tax rate in the economy
D. 1/d where d is the reserve to deposit ratio of commercial banks

E. both A. and B. are correct


14. If a bank's desired reserve/deposit ratio is .33 and it has deposit liabilities of $100 million and reserves of $50 million, it: 
A. has too few reserves and will reduce its lending.
B. has too many reserves and will increase its lending.
C. has the correct amount of reserves and outstanding loans.
D. should increase the amount of its reserves.


15. According to the quantity equation, if velocity and output are constant, then an increase in the money supply leads to _____ in inflation. 
A. a less than proportional increase
B. a less than proportional decreases
C. the same percentage increase
D. a greater than proportional increase


16. Among the most important indicators used by the NBER Business Cycle Dating Committee to determine the beginning of the 2001 recession were each of the following indicators EXCEPT: 
A. industrial production.
B. total sales in manufacturing, wholesale trade, and retail trade.
C. the consumer price index.
D. nonfarm employment.


17. An expansion occurs: 
A. when either potential output grows rapidly, and/or, when actual output rises above potential output.
B. when either potential output grows slowly, and/or, when actual output rises above potential output
C. when either potential output grows at normal rates and actual output is less than potential output
D. only when actual output rises above potential output.


18. If the frictional rate of unemployment equals 2 percent, the structural rate of unemployment equals 3 percent, and the cyclical rate of unemployment equals 1 percent, then the economy has a(n) ______ and the unemployment rate equals: 
A. recessionary gap; 4%.
B. expansionary gap; 3%.
C. recessionary gap; 5%.
D. recessionary gap; 6%.


19. The aging of the labor force in the U.S. is likely to ____ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to _____ the natural rate of unemployment. 
A. decrease; decrease
B. increase; increase
C. increase; decrease
D. decrease; increase


20. If the natural rate of unemployment is 4 percent, what is the actual rate of unemployment if output is 4 percent above potential? 
A. 2%
B. 3%
C. 4%
D. 5%


21. In Okunland, a country that operates according to Okun's law, real GDP equals $7,520 billion, potential GDP equals $8,000 billion and the actual unemployment rate is 8 percent. What is the natural rate of unemployment in Okunland? 
A. 5 %
B. 6 %
C. 7 %
D. 8 %


22. In the short-run, ______ determines output and, in the long-run, ____ determines output. 
A. potential output; prices
B. potential output; total spending
C. total spending; potential output
D. total spending; prices


23. In the Keynesian model deviations of output from potential are caused by: 
A. fluctuations in average labor productivity.
B. random output shocks.
C. inflation shocks.
D. fluctuations in aggregate spending


24. All of the following would be included in planned aggregate expenditure EXCEPT: 
A. purchases of services provided by government employees.
B. planned changes in inventories.
C. sales of domestically produced goods to foreigners.
D. social security payments.


25. When actual investment is greater than planned investment: 
A. firms sold less output than expected.
B. firms sold more output than expected.
C. the quantity of output sold is the amount the firm expected to sell.
D. the economy produces short-run equilibrium output.


26. For an economy starting from potential output, an increase in planned investment in the short run results in a(n): 
A. expansionary output gap.
B. recessionary output gap.
C. increase in potential output.
D. decrease in potential output.


27. The tendency of changes in asset prices to affect spending on consumption goods is called the _____ effect. 
A. income
B. substitution
C. wealth
D. multiplier


28. If PAE = 900 + 0.75Y then induced expenditures equal _____. 
A. $675
B. $2700
C. $900
D. cannot be determined.


29. In Macroland autonomous consumption equals 100, the marginal propensity to consume equals .75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The consumption function is: 
A. 100 + .25Y
B. 100 + .75Y
C. 70 + .75Y
D. 290 + .75Y

E. 290 + 0.75Y


30. In the short run with predetermined prices, when output is greater than planned aggregate expenditure, firms will: 
A. reduce production.
B. increase production.
C. increase planned aggregate expenditure.
D. decrease planned aggregate expenditure.


31. PAE in an economy equals 5,000 + .75Y and potential output (Y*) equals 17,000.  Then at its short run equilibrium this economy has a(n)  _____ and a tax _____ of _____ will close the gap. 
A. expansionary gap; increase; $1000.
B. recessionary gap; cut; $500.
C. expansionary cut; $111.11.
D. recessionary; increase; $111.11.


32. The larger the mpc, the ____ the Keyenesian income-expenditure multiplier and the ____ the Keyenesian tax multiplier. 
A. larger; larger
B. larger; smaller
C. smaller; smaller
D. smaller; larger


33. The federal funds rate is the interest rate on short-term loans made by: 
A. the Federal Reserve to commercial banks.
B. the federal government to the Federal Reserve.
C. the Federal Reserve to the federal government.
D. commercial banks to other commercial banks.


34. To close a recessionary gap, the Fed ____ interest rates which ______ planned aggregate spending and _____ short-run equilibrium output. 
A. lowers; increases; increases
B. raises; decreases; increases
C. raises; decreases; decreases
D. lowers; increases; decreases


35. If the income-expenditure multiplier equals 4 and a 1 percentage point increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by _____ the real interest rate by _____ percentage points. 
A. increasing; 10
B. increasing; 4
C. increasing; 2.5
D. decreasing; 2.5


36. The opportunity cost of money is: 
A. the time spent going to the bank to withdraw funds.
B. the fees charged by banks to provide checking services.
C. the nominal interest rate.
D. the price level.


37. ______ increases the quantity of money demanded and ______ increases the demand for money. 
A. Lower nominal interest rates; fall in real GDP
B. Lower nominal interest rates; rise in nominal GDP
C. Fall in economy wide price level; fall in the nominal interest rate
D. Increase in nominal GDP; fall in the nominal interest rate.


38. Which of the following would be expected to decrease the U.S. demand for money? 
A. Grocery stores begin to accept credit cards in payment.
B. The economy enters a boom period.
C. Political instability increases dramatically in developing nations.
D. Households fear increasing computer glitches will severely limit their ability to use ATMs.


39. If the nominal interest rate is below the equilibrium value, then money demand is ______ than money supply, bond prices will ____, and the nominal interest rate will ____. 
A. greater; fall; increase
B. greater; fall; decrease
C. greater; rise; increase
D. less; fall; increase


40. When Argentines increase their savings in U.S. dollars,

A. the US money supply curve shifts left; the Fed raises nominal interest rates to reduce money demand.
B. the US money supply curve shifts right; the Fed lowers nominal interest rates.
C. the US money demand curve shifts right; nominal interest rates rise.
D. the US money demand curve shifts left; nominal interest rates fall.


41. If planned aggregate spending in an economy can be written as PAE = 1010 + 0.8Y – 2000r, by how much must the fed change the interest rate to raise equilibrium GDP by $300? 
A. cut r by 2%
B. cut r by 3%
C. cut r by 4%
D. cut r by 5%