Econs 1.5 Test

Which of the following is most likely to cause a shift to the right in the aggregate demand curve?

• A. Boom in the stock market
• B. Increase in taxes
• C. Decrease in real estate values

Which of the following best describes a fundamental assumption when monetary policy is used to influence the economy?

• A. Financial markets are efficient.
• B. Money is not neutral in the short run.
• C. Official rates do not affect exchange rates.

According to the theory of money neutrality, money supply growth does not affect variables such as real output and employment in:

• A. the long run.
• B. the short run.
• C. the long and short run.

In theory, setting the policy rate equal to the neutral interest rate should promote:

• A. stable inflation.
• B. balanced budgets.
• C. greater employment.

An advantage of indirect taxes as a fiscal policy tool is that such taxes:

• A. have a greater impact on aggregate spending and output than direct government spending.
• B. can be adjusted almost immediately.
• C. minimize interference with consumer choices.

If the GDP deflator values for year 1 and year 2 were 190 and 212.8, respectively, which of the following best describes the annual growth rate of the overall price level?

• A. 5.8%.
• B. 6%.
• C. 12%.

Monetarists favor a limited role for the government because they argue:

• A. government policy responses may lag.
• B. firms take time to adjust to systemic shocks to the economy.
• C. resource use is efficient with marginal revenue and cost equal.

Which of the following best represents a contractionary fiscal policy?

• A. Public spending on a high-speed railway.
• B. A temporary suspension of payroll taxes.
• C. A freeze in discretionary government spending.

Which of the following equations is a consequence of the Fisher effect?

• A. Nominal interest rate = Real interest rate + Expected rate of inflation.
• B. Real interest rate = Nominal interest rate + Expected rate of inflation.
• C. Nominal interest rate = Real interest rate + Market risk premium.

Suppose a painting is produced and sold in 2018 for £5,000. The expenses involved in producing the painting amounted to £2,000. According to the sum-of-value-added method of calculating GDP, the value added by the final step of creating the painting was:

• A. £2,000.
• B. £3,000.
• C. £5,000.