Chapter 11 1. Given an MPC of .6 and a C + I equilibrium level of output of 470

ID: 1176467 • Letter: C

Question

Chapter 11

1. Given an MPC of .6 and a C + I equilibrium level of output of 470 billion if investment is now increased by 50 billion, the new level of equilibrium GDP will be

A) 515 billion

B) 600 billion

C) 400 billion

D) 595 billion

E) It will not change

2. Given an MPC of .75 and the C + I equilibrium of 470 billion, if we now add exports of 30 billion and imports of 40 billion the new level of GDP output will be

A) 620 billion

B) 400 billion

C) 500 billion

D) 470 billion

E) 430 billion

3. Given an MPC of .8 and assuming the C + I equilibrium level of output is 470 billion, if government spending of 30 billion is now added what will the new equilibrium level of output be

A) 620 billion

B) 470 billion

C) 570 billion

D) 600 billion

E) 430 billion

4. If the MPC is .8 and the C + I + G + NG equilibrium level of aggregate expenditure is 620 billion and then government taxes are increased by 30 billion what will the new equilibrium level of GDP be.

A) 500 billion

B) 620 billion

C) 470 billion

D) 400 billion

E) 670 billion

5. The 45-degree line in the aggregate expenditure curve shows the equilibrium between GDP output and total expenditures

A) True

B) False

Chapter 12

5. Given an MPC of .8 and an increase in consumption by 5 billion

A) The aggregate demand curve will shift to the left by 5 billion

B) The aggregate demand curve will shift to the right by 5 billion

C) The aggregate demand curve will remain the same

D) The aggregate demand curve will shift to the right by 25 billion

E) The aggregate demand curve will shift to the left by 25 billion

Chapter 15

1. Assume a required reserve of 20% if the bank owns $40,000 in security bonds and the bank decides to sell all $40,000 in securities and receives $40,000 in cash for the securities how much of this $40,000 will the bank be able to lend out

A) $40,000

B) Nothing

C) $32,000

D) $20,000

E) $52,000

2. Assume a required reserve of 20% and $200,000 is deposited in the form of checkable deposits, of this the bank has $50,000 in treasury bonds and has lent out a further $100,000. What is the maximum amount of new loans the bank can make

A) $200,000

B) Nothing

C) $100,000

D) $10,000

E) $1000

3. Reserve requirements in the banking system are the percent of all deposits that the bank must keep on hand either at the bank itself or at the banks bank account with the Federal Reserve Bank

A) True

B) False

4. Assuming a required reserve of 25% total checkable deposits in the banking system are $200 billion current reserves are $52 billion treasury bond holdings are $48 billion and loans are $100 billion. What is the maximum amount of new M1 money that will be created by the banking system

A) Nothing

B) $200 billion

C) $52 billion

D) $8 billion

E) $10 billion

5. Given a reserve ratio of 40% what will the size of the monetary multiplier be

A) 2.5

B) 4

C) nothing

D) 3.0

E) 1

Chapter 16

5. The full employment level of GDP is 520 billion the current level of GDP output is 500 billion the Federal Reserve should

A) Cut government spending and increase taxes

B) Increase government spending and lower taxes

C) Lower the discount rate, buy bonds and lower the reserve ratio

D) Increase the reserve ratio, increase the discount rate and sell bonds

E) Increase government spending, buy bonds, lower taxes and raise tariffs

Chapter 20

3. Given its current level of resources the United States is producing 15 units of product A and 15 units of product B. Given Thailands resources they are producing 4 units of product A and 8 units of product B. Is there an advantage to either country to trade with each other.

A) The United States should not trade with Thailand because they can produce more of both products than Thailand.

B) The United States has a comparative advantage in producing product B so it should specialize and produce mainly product B, Thailand has a comparative advantage in producing product A so it should specialize and produce mainly product A, then the two countries should trade with one another.

C) The United States has a comparative advantage in producing product A so they should produce mainly product A, Thailand has a comparative advantage in producing product B so they should produce mainly product B, then the two countries should trade with one another.

D) The United States has an absolute advantage in producing both products so they should produce both products and Thailand should import both products from the United States.

E) Thailand has an absolute advantage in producing both products so they should produce both products and the United States should import both products from Thailand

4. Based upon your answer to question three what terms of trade would be mutually beneficial to both countries.

A) The United States should trade one unit of A with Thailand for one unit of B

B) The Untied States should trade one unit of B with Thailand for one unit of A

C) The united States should trade one and a half units of A for one unit of B from Thailand

D) Thailand should trade one and a half units of B for one unit of A from the United States

E) No trade will take place

5. With a tariff all extra revenue created by the tariff will go to the domestic government. With a quota all extra revenue created will go to the import license holder.

A) True

B) False

Chapter 21

1. Refer to figure 21.1/38.1, if the real interest rate in the United States is 7% and in Great Britain the real interest rate is 1% what would happen to the value of each countries currency.

A) The dollar will appreciate against the pound and the pound will depreciate against the dollar

B) The dollar will depreciate against the pound and the pound will appreciate against the dollar

C) The exchange rate will remain the same and not be affected at all

D) The currency of both countries will appreciate

E) The currency of both countries will depreciate

3. Refer to figure 21.1/38.1 if the level of the U.S. trade deficit grows with Great Britain the value of the two countries currencies will.

A) The dollar will appreciate and the pound will depreciate

B) The dollar will depreciate and the pound will appreciate

C) Both countries currencies will appreciate

D) Both countries currencies will depreciate

E) The value of both countries currencies will remain the same

4. All nations back/support their Currency with a precious metal like gold.

A) True

B) False

5. Refer to figure 21.1/38.1 if inflation rises by 10% in the United States but remains constant in Great Britain, the value of the two countries currencies will.

A) The value of the dollar will depreciate and the value of the pound will appreciate

B) The value of the dollar will appreciate and the value of the pound will depreciate

C) The value of both countries currencies will appreciate

D) The value of both countries currencies will depreciate

E) The value of both countries currencies will remain the same

A) The United States should not trade with Thailand because they can produce more of both products than Thailand.

D) The United States has an absolute advantage in producing both products so they should produce both products and Thailand should import both products from the United States.

E) Thailand has an absolute advantage in producing both products so they should produce both products and the United States should import both products from Thailand

Explanation / Answer

in part A:

consumption will also increase as Y increases hence it will be included in the change equation

dY=0.6dY+dI

dY/dI=2.5.....(Investment multiplier)

therefore dY=2.5*50=125

therefore new equilibrium level of GDP is 470+125= 595billions

Pat B: the income identity will be

dY=0.6Y+30-40

dY=-10/0/25=-40

hence the equilibrium GDP is now 470-40=430 billions

Part C: since Government expenditure is adding using multiplier effect as done in previous questions

0.2dY=30

therefore dY=150billions

hence the equilibrium level of output is 470+150=620billions

Part D: since tax has been increased

Y=C+I+G-T+NG

using multiplier effect

0.2dY=-dT=-30

therefore dY=-150

hence new equilibrium level of output is 620-150=470 billions

part E: True

Part F: it will shift it to the right

1. since the reserve requirement is 20% hence the bank has to keep 20% of $40,000 with the Federal Bank

hence the cash it can loan out is $40,000-$8,000=$32,000

2. the reserve requirement requires that the bank keep 20% of $200,000 with the federal bank.

hence it can use only $200,000-$40,000=$160,000

but since it has already used $150,000 therefore it can now use only $10,000

3. true it is the percentage of cash and deposit liabilities which the bank must keep with itself or ar Federal Reserve Bank account.

4. since the bank is holding 52 billions in tresury bills whereas the reuirement is only 50 billion hence it can use 2billion in creating money.

hence its money creating potential is 2billion/0.25=$8billon

5. monetary multiplier=1/reserve ratio=1/0.4=2.5

6. option C because lowering the discount rate and the reserve ratio will increase Investment and hence the economy wil operate at full employment level

chapter 20

1. Option C because USA can produce A efficiently whereas Thailand can't and Thailand can prodce B efficiently and hence these two commodities can be traded.

2. Option C

3. True

chapter 21:

1. the dolla r will appreciate against the pound as higher interest rate will result in larger demand for dollar and hence its value will appreciate.

2. the value of Pound will appreciate because higher imports will mean paying more in pounds than in dollars hence its value will increase and $ value will depreciate

3. True

4. the value of Dollar would depreciate against Pound.

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Chapter 11 1. Given an MPC of .6 and a C + I equilibrium level of output of 470

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