5.3, 5.4 & 5.5 - Money Growth, Debt and Crowding Out

Which of the following will most likely lead to a decrease in inflationary expectations?

• A decrease in the marginal propensity to save

• A decrease in imports

• A decrease in the money supply

• An increase in the government budget deficit

• An increase in the prices of raw materials

Which of the following is true when the velocity of money falls?

• An increase in the money supply will have less effect on nominal gross national product.

• A change in the money supply will affect output only.

• The Federal Reserve will decrease the money supply.

• Output will be greater for a given money supply.

• The public will increase its holdings of assets other than money.

Which of the following is a cause of hyperinflation?

• Rapid growth of real gross domestic product

• Rapid growth of the money supply

• Unanticipated decrease in aggregate demand

• Unanticipated increase in aggregate supply

• Unanticipated rise in real interest rates

According to the quantity theory of money, if the money supply is $40 billion, real output is $100 billion, and the price level is 1.2, what is the velocity of money?

• 1.2

• 2.5

• 3.0

• 3.5

• 4.8

Which of the following will occur if the federal government runs a budget deficit?

• The expenditure multiplier will increase.

• The size of the national debt will increase.

• The economy's output will decrease.

• State governments will run a budget surplus to offset the federal deficit.

• Interest rates will tend to decline.

Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?

• Unemployment will be eliminated and prices will be stable.

• The national debt will increase.

• Business cycles will become more stable.

• The automatic stabilizing effect of fiscal policy will be eliminated.

• The government will be forced to spend less when there are surpluses.

Which of the following is true about the national debt of the United States?

• It is the debt owed to foreign investors.

• It is the accumulation of past and current budget deficits and surpluses.

• It increases when gross domestic product increases.

• It increases when exports decrease, and decreases when exports increase.

• It did not exist before 1980.

The crowding out effect of government spending will be large if

• investment is highly sensitive to changes in the interest rate

• consumption is highly sensitive to changes in wealth

• money demand is highly insensitive to changes in income

• it takes a long time for changes in government spending to cause a change in equilibrium income

• the long-run aggregate supply curve is horizontal

The table below provides the values, in billions of dollars, of selected macroeconomic variables for a nation at the current real interest rate. The nation is a closed economy with no international transactions.

Private Savings = 300

Tax Revenues = 200

Government Spending = 200

Government Transfer Payments = 100

Investment in Plant and Equipment = 300

Based on the table above, what will happen to the real interest rate in the loanable funds market and private investment spending in plant and equipment?

• The real interest rate will increase, and private investment spending will increase.

• The real interest rate will increase, and private investment spending will decrease.

• The real interest rate will decrease, and private investment spending will decrease.

• The real interest rate will decrease, and private investment spending will increase.

• The real interest rate will increase, and private investment spending will not change.

If the federal government reduces its budget deficit when the economy is close to full employment, which of the following will most likely result?

• Inflation will increase.

• Tax revenues will increase.

• Interest rates will decrease.

• Unemployment will decrease.

• The international value of the dollar will increase.