ECON312N Week 8 Quiz Latest 2019 September

ECON312N
Principles of Economics

Week 8 Quiz

Question 1

How do the Fed’s monetary policy actions influence the
exchange rate?

The Fed influences the exchange rate by
changing the U.S. interest rate differential.

The Fed influences the exchange rate by
conducting transactions in the foreign exchange market.

The Fed can influence the exchange rate only
if it changes expectations.

The Fed? can’t influence the exchange rate
because the Fed has no influence on foreign interest rates.

Question 2

The Fed’s policy tools
include

required reserve ratios, the discount rate,
open market operations, and extraordinary crisis measures.

holding deposits for the U.S. government,
reserve requirements, and the discount rate.

required reserve ratios, income tax rates,
and open market operations.

setting regulations for lending standards and
extraordinary crisis measures.

supervision of the banking system and buying
and selling commercial banks.

Question 3

The tax multiplier is
the

magnification effect of a change in taxes on
government expenditures.

magnification effect of a change in taxes on
the budget deficit.

magnification effect of a change in taxes on
the national debt.

magnification effect of a change in taxes on
aggregate demand.

magnification effect of a change in taxes on
aggregate supply.

Question 4

The monetary
multiplier is 3 and the change in the monetary base is $100,000. How much will
the quantity of money increase?

$100,000

$200,000

$70,000

$300,000

$33,333

Question 5

There are four
limitations to the effectiveness of discretionary fiscal policy. Which item
below is NOT one of these limitations?

estimating potential GDP

fiscal multiplier

shrinking area of lawmaker discretion

economic forecasting

lawmaking time lag

Question 6

Using the data in the
above table, if potential GDP for this economy is $25 billion, then in order to
restore full employment, the federal funds rate can be

lowered so that consumption expenditure and
investment increase, though net exports decrease.

lowered so that government expenditure on
goods and services increase.

lowered so that consumption expenditure,
investment, and net exports increase.

raised so that net exports increase.

raised so that consumption expenditure,
investment, and net exports increase.

Question 7

The balanced budget
multiplier is based on the point that the ________ multiplier is larger than
the ________ multiplier so that an equal increase in government expenditure and
taxes ________ aggregate demand.

expenditure; tax; decreases

tax; expenditure; does not change

tax; expenditure; decreases

expenditure; tax; does not change

expenditure; tax; increases

Question 8

When the government’s
outlays equal its tax revenue, the budget

has a deficit and the national debt is
increasing.

has a surplus and the national debt is
increasing.

has a surplus and the national debt is
decreasing.

has a deficit and the national debt is
decreasing.

is balanced and the national debt is not
changing.

Question 9

What the U.S. jobs
report means for the Fed

Despite U.S. job
creation exceeding forecasts in July,
experts believe that with weak output growth, the Fed will not raise the
interest rate until after the U.S. presidential election.

Source: Financial
Times, August 5, 2016

Explain why the Fed
might be cautious about raising interest rates despite strong jobs growth.

The Fed might be
cautious about raising interest rates despite strong jobs growth because _______.

although raising interest rates encourages
further job? growth, it also creates inflation

raising interest rates will slow real GDP
growth even? further, decrease jobs? growth, and at the same time create
inflation

with slow real GDP? growth, raising interest
rates will slow real GDP growth even further and decrease jobs growth

raising interest rates will increase foreign?
investment, and domestic investment is better for the U.S. economy

Question 10

Clinton and Trump on
fiscal policy

In the 2016
Presidential election campaign, both Hillary Clinton and Donald Trump committed
to big government infrastructure spending and tax cuts.

Source: The Wall
Street Journal, July 27, 2016

Consider an increase
in infrastructure spending and a tax cut of the same magnitude. What policy
will change aggregate demand the most: an increase in infrastructure spending
or a cut in taxes?

A combination of an increase in
infrastructure spending and an equal cut in taxes

Neither an increase in infrastructure
spending nor a cut in taxes will influence aggregate demand

A cut in taxes

An increase in infrastructure spending

Question 11

During the Great
Depression, real GDP decreased, unemployment soared, and the inflation rate was
negative. Which would have been the appropriate federal government policy
combination to improve economic performance?

decrease government expenditure, increase
taxes, decrease the quantity of money

increase government expenditure, decrease
taxes, increase the quantity of money

increase government expenditure, decrease
taxes, decrease the quantity of money

do not change government expenditures or
taxes , increase the quantity of money

decrease government expenditures, increase
taxes, do not change the quantity of money

Question 12

The money multiplier
is equal to? ______.

monetary base divided by quantity of money

quantity of money divided by monetary base

change in monetary base divided by change in
the quantity of money

the Federal Funds rate

Question 13

If the economy is in
an equilibrium with real GDP less than potential GDP, a fiscal stimulus could
move the economy toward potential GDP by simultaneously ________ taxes and
________ government expenditures on goods and services.

raising; not changing

cutting; decreasing

cutting; increasing

raising; decreasing

raising; increasing

Question 14

Control of monetary
policy rests with

Congress.

the President.

the Federal Reserve.

the Comptroller of the Currency.

the U.S. Treasury.

Question 15

To fight unemployment
and close a recessionary? gap, the Fed? ________.

stimulates aggregate demand by lowering the
federal funds? rate, which increases the quantity of money

increases? employment, which increases real
GDP

increases bank? reserves, which banks use to
make new loans to? businesses, which increases aggregate supply

stimulates aggregate supply by lowering the
federal funds? rate, which increases potential GDP

Question 16

The desired reserve
ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps
its minimum desired reserves and lends the excess to Fredrica. How much does
Bank America lend to Fredrica?

$300

$2,700

$3,000

$900

$2,910

Question 17

The Federal Reserve
fears that the United States economy is growing too slowly and is stuck in a
recession. To move the economy back to its potential GDP, the most likely
policy action for the Fed is to ________ the federal funds and thus ________ .

lower; increase aggregate supply

lower; increase aggregate demand

raise; increase aggregate demand

raise; decrease aggregate demand

lower; decrease aggregate supply

Question 18

Explain how aggregate
demand changes when the government increases both expenditures on goods and
services and taxes by $100 billion.

Aggregate demand ______ because the increase in government
expenditure has ______ effect on
aggregate demand than the effect of the tax increase.

?increases; a smaller

?decreases; a larger

?increases; a larger

?decreases; a smaller

Question 19

An example of
automatic fiscal policy is

Congress passing a tax rate reduction
package.

the federal government expanding spending at
the Department of Education.

a change in taxes that has no multiplier
effect.

expenditure for unemployment compensation
increasing as economic growth slows.

the Federal Reserve reducing interest rates
as economic growth slows.

Question 20

When the Fed ________
securities in an open market operation, banks’ reserves ________, and therefore
lending ________.

sells; decrease; increases

buys; do not change; does not change

buys; increase; increases

buys; decrease; decreases

sells; increase; increases