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Topics: Supply and demand, Monetary policy, Money Pages: 6 (1272 words) Published: October 29, 2014
Econ 2123 Problem Set 2
Instructor: Wenwen Zhang
TA: Mike Cheng
Lecture: L5, L6
Due date & Homework Submission Location: Before 10/14 Tue 5:30p.m. Dropbox on the LSK 6th floor (Outside Econ Department)
Name: _________________________________
Student ID: _____________________________
Lecture: ________________________________
Multiple Choices

 
1. Which of the following would NOT be considered part of fixed investment spending (I)?
A) Toyota buys a new robot for its automobile assembly line. B) Apple computer builds a new factory.
C) Exxon increases its inventories of unsold gasoline.
D) An accountant buys a newly built home for herself and her family. E) all of the above

 
2. Suppose the consumption equation is represented by the following: C = 250 + .75YD. Given this information, the marginal propensity to save is A) .25.
B) .7.
C) 1.
D) 4.
E) none of the above

 
3. Which of the following events will cause a reduction in equilibrium output? A) an increase in the marginal propensity to save
B) an increase in taxes
C) a reduction in the marginal propensity to consume
D) all of the above
E) none of the above

 
4. If C = 2000 + .9YD, what increase in government spending must occur for equilibrium output to increase by 1000?
A) 100
B) 200
C) 250
D) 500
E) 1000

 

 

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5. Based on our understanding of the model presented in Chapter 3, we know that an increase in c1 (where C = c0 + c1YD) will cause
A) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a smaller effect on output.
B) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a larger effect on output.
C) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a smaller effect on output.
D) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a larger effect on output.

 
6. Which of the following about IS relation is NOT correct?
A) It is the relation between interest rate and savings.
B) It is the equilibrium condition for the goods market.
C) It stands for "Investment equals saving."
D) It shows what firms want to invest must be equal to what people and the government want to save.

 
7. Which of the following will cause an increase in the amount of money that one wishes to hold?
A) an increase in the interest rate increase
B) a reduction in the interest rate increase
C) a reduction in income
D) none of the above

 
8. The money demand curve will shift to the left when which of the following occurs?
A) a reduction in the interest rate
B) an increase in the interest rate
C) an open market sale of bonds by the central bank
D) an increase in income
E) none of the above

 
9. At the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that
A) the price of bonds will tend increase.
B) the price of bonds will tend to fall.
C) production equals demand.
D) the goods market is also in equilibrium.
E) the supply of bonds also equals the demand for bonds.
10. Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest rate. Given this information, we know that the bond's price must be
A) $869.56.
B) $1150.
C) $850.
D) $950.
E) none of the above

 

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11. Which of the following generally occurs when a central bank pursues expansionary monetary policy?
A) the central bank purchases bonds and the interest rate increases. B) the central bank purchases bonds and the interest rate decreases. C) the central bank sells bonds and the interest rate increases. D) the central bank sells bonds and the interest rate decreases. 12. Which of the following will occur when the central bank pursues expansionary monetary policy?

A) a leftward shift in the money demand curve and a leftward shift in the money supply curve...
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