Unit 4 AP Macro Homework

All of the following changes will shift the investment demand curve to the right EXCEPT

• a) a decrease in the corporate income tax rate

• b) an increase in real gross domestic product

• c) an increase in corporate profits

• d) an increase in the real interest rate

• e) an increase in the productivity of new capital goods

Which of the following is true for bonds but not for stocks?

• Bonds have zero opportunity cost.

• Bonds earn variable rates of return.

• Bonds represent partial ownership in a company.

• Bonds are the least liquid form of assets.

• Bonds are interest-bearing assets.

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:

• an increase in consumption spending

• a decrease in taxes

• a decrease in the money supply

• an increase in government spending

• an increase in the price level

Assume that the government finances its spending by borrowing from the public. If the government increases deficit spending, the price of previously issued bonds and the real interest rate will change in which of the following ways?

• Price of Bonds: Increase, Real Interest Rate: No change

• Price of Bonds: Decrease, Real Interest Rate: Increase

• Price of Bonds: Increase, Real Interest Rate: Decrease

• Price of Bonds: Increase, Real Interest Rate: Increase

• Price of Bonds: Decrease, Real Interest Rate: Decrease

An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways?

• Demand for Money: Increase, Nominal Interest Rates: Indeterminate

• Demand for Money: Increase, Nominal Interest Rates: Increase

• Demand for Money: Increase, Nominal Interest Rates: Decrease

• Demand for Money: Decrease, Nominal Interest Rates: Increase

• Demand for Money: Decrease, Nominal Interest Rates: Decrease

A barter economy is different from a money economy in that a barter economy encourages specialization and division of labor, promotes market exchanges, involves higher costs for each transaction, eliminates the need for a double coincidence of wants, has only a few assets that serve as a medium of exchange.

• Encourages specialization and division of labor

• Promotes market exchanges

• Involves higher costs for each transaction

• Eliminates the need for a double coincidence of wants

• Has only a few assets that serve as a medium of exchange

Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

• $50,000

• $8,000

• $2,000

• $10,000

• $20,000

Assume the nominal interest rate on a 15-year fixed-rate mortgage loan is 5 percent. If the expected inflation rate is 2 percent, the expected real interest rate is 10%, 3%, 2%, 5%, 7%.

• 10%

• 3%

• 2%

• 5%

• 7%

Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 5 percent, the real interest rate is 4MA48.

• 0.5%

• 2%

• 15%

• 10%

• 5%