28. The interest rate paid on bonds decreases from 6% to 2%. This will causeA) no change in the optimal balance because checking deposits don't earn interest.B) the optimal balance to decrease because it raises the opportunity cost of holding money.C) the optimal balance to increase because it reduces the opportunity cost of holding money.D) the optimal balance to increase because it lowers the opportunity costs of holding money.29. The demand for money and the interest rate areA) positively related.B) negatively related.C) not related.D) sometimes positively related and other times negatively related, depending on the bond payments.30.If interest rates are higher than what individuals consider normal, they willA) decrease their transaction money demand.B) increase their speculative money demand.C) decrease their speculative money demand.D) increase their transaction money demand.31.Refer to figure. There is an excess supply of money of $400 billion at aninterest rate ofA) 8%.B) 5%.C) 3%.D) < 3%.32.Increasing the required reserve ratio shifts the money supply curve to the ________ and ________ theequilibrium interest rate.A) left; increasesB) right; decreasesC) right; increasesD) left; decreases33. An increase in aggregate demand when the economy is operating ________ is likely to result in an increase inthe overall price level and ________ in output.A) at full capacity; a decreaseB) below full capacity; no increaseC) below full capacity; a decreaseD) at full capacity; no increase34. A decrease in the price level is likely to decrease the aggregate amount of output supplied in the short runbecauseA) interest rate is high in the short run.B) wages are sticky in the short run.C) the aggregate supply curve is vertical in the short run.D) wages change in the short run.35. Natural gas is used as a source of energy in many manufacturing processes. Assume a long strike by natural gasworkers reduced the supply of natural gas and increased the price of natural gas. This would causeA) the short-run aggregate supply curve to shift to the left.B) the short-run aggregate supply curve to become nearly vertical at all levels of output.C) the short-run aggregate supply curve to become flatter.D) the short-run aggregate supply curve to shift to the right.36. Which of the following sequence of events follows an open market sale by the Fed?A) r↑ ⇒ I↑ ⇒ AE↓ ⇒ Y↑B) r↓ ⇒ I↑ ⇒ AE↑ ⇒ Y↑C) r↑ ⇒ I↓ ⇒ AE↓ ⇒ Y↓D) r↓ ⇒ I↓ ⇒ AE↓ ⇒ Y↓37. Which of the following sequence of events follows a decrease in the discount rate?A) r↓ ⇒ I↓ ⇒ AE↓ ⇒ Y↑B) r↓ ⇒ I↑ ⇒ AE↑ ⇒ Y↑C) r↑ ⇒ I↓ ⇒ AE↓ ⇒ Y↓D) r↑ ⇒ I↑ ⇒ AE↑ ⇒ Y↑38. Aggregate demand refers to the relationship betweenA) prices and the quantity of a good demanded.B) prices and the quantity of a good supplied.C) the price level and aggregate output demanded.D) the price level and aggregate output supplied.39. Which of the following causes a movement along the aggregate demand curve?A) a decrease in taxesB) a fall in wagesC) an increase in government spendingD) an increase in prices40. Output in the short run is determined by which of the following factors when an economy operates at fullemployment?A) the labor forceB) demandC) supplyD) the price level41.In the long runA) price and output levels are mutually dependent.B) the price level is independent of the level of output.C) the level of output is depends on the price level.D) the level of output is independent of the price level.42. Which of the following is an example of a contractionary fiscal policy?A) the federal government decreasing the marginal tax rate on incomes below $200,000B) the Fed buying government securities in the open marketC) the federal government reducing pollution standards to allow firms to produce more outputD) the federal government decreasing the amount of money spent on public health programs43.Refer to figure. The aggregate supply curve shifting from AS1 to AS2 will causeA) hyperinflation.B) demand-pull inflation.C) deflation.D) cost-push inflation.44.Refer to figure. Assume the economy is at Point A. Lower oil prices shiftthe aggregate supply curve to AS0. If the government decides to counter theeffects of lower oil prices by decreasing government spending, then theprice level will be ________ than P0 and output will be ________ than Y0.A) greater; greaterB) less; lessC) less; greaterD) greater; less45. A sudden increase in aggregate demand causes a ________ inflation and ________ output.A) demand-pull; lower B) demand-pull; higherC) cost-push; lower D) cost-push; higher46. Stagflation is an economic condition characterized by ________ unemployment and ________ inflation.A) low; high B) low; lowC) high; low D) high; high
28. The interest rate paid on bonds decreases from 6% to 2%. This will cause
A) no change in the optimal balance because checking deposits don't earn interest.
B) the optimal balance to decrease because it raises the opportunity cost of holding money.
C) the optimal balance to increase because it reduces the opportunity cost of holding money.
D) the optimal balance to increase because it lowers the
29. The
A) positively related.
B) negatively related.
C) not related.
D) sometimes positively related and other times negatively related, depending on the bond payments.
30.If interest rates are higher than what individuals consider normal, they will
A) decrease their transaction money demand.
B) increase their speculative money demand.
C) decrease their speculative money demand.
D) increase their transaction money demand.
31.Refer to figure. There is an
interest rate of
A) 8%.
B) 5%.
C) 3%.
D) < 3%.
32.Increasing the
equilibrium interest rate.
A) left; increases
B) right; decreases
C) right; increases
D) left; decreases
33. An increase in aggregate demand when the economy is operating ________ is likely to result in an increase in
the overall price level and ________ in output.
A) at full capacity; a decrease
B) below full capacity; no increase
C) below full capacity; a decrease
D) at full capacity; no increase
34. A decrease in the price level is likely to decrease the aggregate amount of output supplied in the short run
because
A) interest rate is high in the short run.
B) wages are sticky in the short run.
C) the
D) wages change in the short run.
35. Natural gas is used as a source of energy in many manufacturing processes. Assume a long strike by natural gas
workers reduced the supply of natural gas and increased the price of natural gas. This would cause
A) the short-run aggregate supply curve to shift to the left.
B) the short-run aggregate supply curve to become nearly vertical at all levels of output.
C) the short-run aggregate supply curve to become flatter.
D) the short-run aggregate supply curve to shift to the right.
36. Which of the following sequence of events follows an open market sale by the Fed?
A) r↑ ⇒ I↑ ⇒ AE↓ ⇒ Y↑
B) r↓ ⇒ I↑ ⇒ AE↑ ⇒ Y↑
C) r↑ ⇒ I↓ ⇒ AE↓ ⇒ Y↓
D) r↓ ⇒ I↓ ⇒ AE↓ ⇒ Y↓
37. Which of the following sequence of events follows a decrease in the discount rate?
A) r↓ ⇒ I↓ ⇒ AE↓ ⇒ Y↑
B) r↓ ⇒ I↑ ⇒ AE↑ ⇒ Y↑
C) r↑ ⇒ I↓ ⇒ AE↓ ⇒ Y↓
D) r↑ ⇒ I↑ ⇒ AE↑ ⇒ Y↑
38. Aggregate demand refers to the relationship between
A) prices and the quantity of a good demanded.
B) prices and the quantity of a good supplied.
C) the price level and
D) the price level and aggregate output supplied.
39. Which of the following causes a movement along the aggregate demand curve?
A) a decrease in taxes
B) a fall in wages
C) an increase in government spending
D) an increase in prices
40. Output in the short run is determined by which of the following factors when an economy operates at full
employment?
A) the labor force
B) demand
C) supply
D) the price level
41.In the long run
A) price and output levels are mutually dependent.
B) the price level is independent of the level of output.
C) the level of output is depends on the price level.
D) the level of output is independent of the price level.
42. Which of the following is an example of a contractionary fiscal policy?
A) the federal government decreasing the marginal tax rate on incomes below $200,000
B) the Fed buying government securities in the open market
C) the federal government reducing pollution standards to allow firms to produce more output
D) the federal government decreasing the amount of money spent on public health programs
43.Refer to figure. The aggregate supply curve shifting from AS1 to AS2 will cause
A) hyperinflation.
B) demand-pull inflation.
C) deflation.
D) cost-push inflation.
44.Refer to figure. Assume the economy is at Point A. Lower oil prices shift
the aggregate supply curve to AS0. If the government decides to counter the
effects of lower oil prices by decreasing government spending, then the
price level will be ________ than P0 and output will be ________ than Y0.
A) greater; greater
B) less; less
C) less; greater
D) greater; less
45. A sudden increase in aggregate demand causes a ________ inflation and ________ output.
A) demand-pull; lower B) demand-pull; higher
C) cost-push; lower D) cost-push; higher
46. Stagflation is an economic condition characterized by ________
A) low; high B) low; low
C) high; low D) high; high
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