1. The Obama administration substantially increased government spending on infra
ID: 1126027 • Letter: 1
Question
1. The Obama administration substantially increased government spending on infrastructure, military, bailout for firms and other project. According to economic theory this should:
Select one:
a. It helped reduce the unemployment rate and created more inflation
b. It helped reduce the unemployment rate and reduced inflation
c. It caused the unemployment rate to rise, but helped control inflation
d. It caused the unemployment rate to rise and created more inflation
e. Government policy has no effect on the economy
2. The city of Myrtle Beach decides to force hotels to lower their daily prices to no more than $40 per room in order to attract more tourists to the area, as a result the number of tourists that want to come to Myrtle Beach would __(1)__ and the number of available hotel rooms would __(2)__.
Select one:
a. (1) Rise (2) Rise
b. (1) Rise (2) Fall
c. (1) Fall (2) Rise
d. (1) Fall (2) Fall
e. The policy will have no effect on the tourism industry
3. Lisa's Marginal Propensity to Save is 0.20, her autonomous consumption is $15,000 and her disposable income is $120,000. How much is Lisa saving?
Select one:
a. She is saving $2,000
b. She is saving $5,000
c. She is saving $9,000
d. She is saving $12,000
e. She is saving $15,000
4. Assume that banks lend out all their excess reserves and individuals deposit all their money. If the Required Reserve Ratio is .20, what does the Fed have to do to decrease the supply of money by $300 billion?
Select one:
a. Sell $60 billion worth of government bonds to commercial banks
b. Sell $80 billion worth of government bonds to commercial banks
c. Sell $200 billion worth of government bonds to commercial banks
d. Buy $100 billion worth of government bonds from commercial banks
e. Buy $60 billion worth of government bonds from commercial banks
5. Websites, like Instagram and Facebook, which allow people to post pictures from their cell phone become more popular and, at the same time, the number of cell phone suppliers rose? What would happen to the price and quantity of cell phones as a result?
Select one:
a. Price will increase, but quantity can increase, decrease or remain the same
b. Price will decrease, but quantity can increase, decrease or remain the same
c. Quantity will increase, but price can increase, decrease or remain the same
d. Quantity will decrease, but price can increase, decrease or remain the same
e. Price and quantity will both remain the same
6.Tara takes sells her family's land and uses the funds to buy corporate stocks. How would this transaction affect M1 and M2?
Select one:
a. It would decrease M1, but will increase M2
b. It would increase M1 and increase M2
c. It would increase M2, but M1 would remain the same
d. It would increase M1, but M2 will remain the same
e. Both M1 and M2 will remain the same
7. When the economy is in a severe recession: 1. Interest rates tend to _______ and 2. consumption is likely to _______?
Select one:
a. 1. Rise; 2. Rise
b. 1. Rise; 2. Fall
c. 1. Fall; 2. Rise
d. 1. Fall; 2. Fall
e. 1. Rise; 2. Stay the Same
8. Suppose that the Current Account for the country of Tradebilia is as follows:
Goods Exports: $110 billion
Goods Imports: $80 billion
Balance of Merchandise (goods):
Service Exports: $90 billion
Service Imports: $110 billion
Services Balance:
Net Unilateral Transfers:
Current Account Balance: $5 billion
Based on this information, what does Net Unilateral Transfers equals in Tradebilia?
Select one:
a. - $15 billion
b. - $5 billion
c. 0 (no net unilateral transfers)
d. + $5 billion
e. + $15 billion
9. What would happen to the equilibrium price and equilibrium quantity of oranges if the costs of fertilizers, water and farm equipment increased?
Select one:
a. Price and quantity would both increase
b. Price and quantity will both decrease
c. Price will increase, but quantity will decrease
d. Price will decrease, but quantity will increase
e. It is impossible to determine what would have to price and quantity
10. Which of the following countries is the BEST example of a transition economy?
Select one:
a. Germany
b. Mexico
c. Afghanistan
d. Republic of Congo
e. Japan
Explanation / Answer
1. a. It helped reduce the unemployment rate and created more inflation
Explanation: When the government spends more on the economy, it is called expansionary fiscal policy. Expansionary fiscal policies result in aggregate spending and investment, which reduces unemployment. However, increased aggregate demand and investment create inflation.
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