DC Economics Final Review, Part 2

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

• Nominal Interest Rate - Increase / Aggregate Demand - Increase

• Nominal Interest Rate - Increase / Aggregate Demand - No Change

• Nominal Interest Rate - Decrease / Aggregate Demand - Decrease

• Nominal Interest Rate - Decrease / Aggregate Demand - Decrease

• Nominal Interest Rate - Increase / Aggregate Demand - Decrease

 Dissaving occurs when disposable income is:

• $1,000

• $700

• $660

• $640

• $620

The marginal propensity to save for this economy is:

• 4.0

• 1.0

• .8

• 0

• .2

Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 percent to 8 percent, the money supply will:

• decrease by more than half

• decrease by half

• decrease by less than half

• exactly double

• increase by less than double

The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift in the aggregate demand curve from AD1 to AD2 could be caused by:

• 1. a decrease in taxes  

• 1. an increase in government spending 

• 1. an increase in consumption spending

• 1. an increase in the price level 

• a decrease in the money supply

According to the bank balance sheet above, what is the reserve requirement?

• 15%

• 20%

• 25%

• 5%

• 10%

Assume that a customer withdraws $10,000 cash from their checking account at this bank. How much will the bank’s total reserves change based on this customer’s withdrawal?

• 1. increase by $11,000

• 1. decrease by $11,000

• 1. increase by $1,000

• 1. the total reserves would remain unchanged

• decrease by $10,000

73. If the economy is experiencing inflation the correct monetary policy action would be to:

• 1. decrease the discount rate; decrease the reserve ratio; buy bonds

• 1. increase the discount rate; decrease the reserve ratio; sell bonds

• 1. decrease the discount rate; increase the reserve ratio; buy bonds

• 1. Increase the discount rate; increase the reserve ratio; buy bonds

• 1. increase the discount rate; increase the reserve ratio; sell bonds

The table above shows the production alternatives of France and Mexico for producing computers and cars with equal amounts of resources and are fully and efficiently employed.

• 1. France has an absolute and comparative advantage in the production of computers.

• 1. Mexico should import computers and export cars.

• 1. Since Mexico has an absolute advantage in the production of both goods, it will not trade with France.

• 1. Neither country can benefit from trade.

• 1. Mexico has an absolute and comparative advantage in the production of computers.

A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy?

• Fiscal Policy - Decrease Taxes / Monetary Policy - Buy Bonds

• Fiscal Policy - Increase Government Spending / Monetary Policy - Raise Discount Rate

• Fiscal Policy - Decrease Spending / Monetary Policy - Lower Discount Rate

• Fiscal Policy - Decrease Taxes / Monetary Policy - Lower Margin Requirements

• Fiscal Policy - Increase Taxes / Monetary Policy - Sell Bonds