Macro Review #2

Which of the following typically occurs during an expansionary phase of a business cycle?

• Nominal interest rates decrease.

• Income taxes decrease.

• The price level decreases.

• Government transfer payments increase.

• Employment increases.

Economic growth refers to an increase in which of the following?

• Government spending

• Consumption spending

• Nominal gross domestic product

• Potential real gross domestic product

• Household wealth

If both the nominal interest rate and the expected inflation rate increase, what will happen to the real interest rate?

• It will increase because the expected inflation rate has increased.

• It will increase because the nominal interest rate has increased.

• It will increase if the expected inflation rate increases by more than the nominal interest rate.

• It will decrease because the nominal interest rate has increased.

• It will decrease if the expected inflation rate increases by more than the nominal interest rate.

Which of the following statements is true about an expansionary fiscal policy?

• It decreases demand for loanable funds.

• It decreases the equilibrium price level.

• It decreases the equilibrium real interest rate.

• It increases aggregate demand.

• It increases the money supply.

Which of the following will most likely result from deflation?

• Increased nominal interest rates

• Increased business profits

• Increased real value of fixed incomes

• Decreased purchasing power of cash

• Decreased real wealth

Which of the following is a defining characteristic of a fractional reserve banking system?

• The existence of a central bank with a monopoly on money creation

• The use of paper money backed by a commodity such as gold or silver

• The fact that banks retain an amount of bank reserves that is less than the amount of customer demand deposits

• The requirement that banks maintain a certain percentage of their reserves as a deposit in an account at the central bank

• The regulations that separate investment banking from commercial banking

A negative aggregate supply shock will result in which of the following in the short run?

• An increase in the price level and a decrease in the unemployment rate

• A decrease in the price level and an increase in the unemployment rate

• A decrease in both the price level and real output

• An increase in both the price level and real output

• An increase in both the price level and the unemployment rate

Which of the following combinations of fiscal and monetary policies will correct a severe recession?

• Increasing income tax rates and increasing administered interest rates

• Increasing income tax rates and decreasing administered interest rates

• Decreasing income tax rates and increasing administered interest rates

• Decreasing income tax rates and decreasing administered interest rates

• Decreasing income tax rates and increasing the policy rate

Which of the following would decrease the United States net exports to South Korea?

• South Korean computer companies sell more computer parts to the United States.

• South Korean insurance companies provide fewer services to the United States.

• South Koreans spend more vacations in the United States.

• United States banks provide more banking services to South Korea.

• United States smartphone companies sell more smartphones to South Korea.

An increase in the purchases of newly constructed houses will result in which of the following?

• Aggregate demand will decrease as a result of a decrease in the price level.

• Aggregate demand will increase as a result of an increase in investment spending.

• Aggregate demand will increase as a result of an increase in exports.

• Aggregate demand will not change, since consumer spending has not changed.

• Aggregate demand will not change, since investment spending has not changed.