Test Bank Principles of MacroEconomics, 13e Karl Case, Ray Fair, Sharon Oster All Chapters, Answers

Test Bank Principles of MacroEconomics, 13e Karl Case, Ray Fair, Sharon Oster (All Chapters, Answers at the end)

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.The Bretton Woods System 1) Exchange rate

($/£)

Quantity of pounds (£) demanded Quantity of pounds (£) supplied

3.40 4.30 7.10

2.00 5.40 5.40

1.20 7.10 4.30

Refer to the data in the table, which represents millions of British pounds traded per day.Under the Bretton Woods system of exchange rates, if the par exchange rate was $3.40 per pound, then which of the following is true?

1) _______

• The Bank of England would have to buy 2.8 million pounds per day with dollars.
• The Bank of England would have to sell 2.8 million pounds per day for dollars.
• The Bank of England would have to sell 1.1 million pounds per day for dollars.
• There is a shortage of pounds equal to 2.8 million.

2) Exchange rate

($/£)

Quantity of pounds (£) demanded Quantity of pounds (£) supplied

3.30 4.30 6.50

2.20 5.70 5.70

1.00 6.50 4.30

Refer to the data in the table, which represents millions of British pounds traded per day.Under the Bretton Woods system of exchange rates, if the par exchange rate was $1.00 per pound, then which of the following is true?

2) _______

• The Bank of England would have to buy 1.4 million pounds per day with dollars.
• There is a surplus of pounds equal to 2.2 million.
• The Bank of England would have to sell 2.2 million pounds per day for dollars.
• The Bank of England would have to buy 2.2 million pounds per day with dollars.

Measures of Income 3) National Income $1100 Retained earnings not paid as dividends 65 Transfer payments 50 Interest on government bonds 35 Personal taxes 55

Refer to the table. The table contains data representing the components of national income for an economy. All values are in billions of dollars. What is the level of disposable personal income for this economy?

3) _______

• $1050 billion B) $995 billion C) $1045 billion D) $895 billion

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The Marginal Propensity to Consume and the Marginal Propensity to Save 4) If disposable income increases by $120 million and consumption increases by $75 million, then the marginal propensity to consume (MPC) is ________. (Round to the nearest hundredth.)

4) _______

A) 0.63 B) 0.38 C) 1.60 D) 0.02

Supply-Side Theory 5) Tax Rate (%) Tax Revenue ($)

25 1000

35 1700

60 1300

70

85 1000

100

The table contains data for a typical Laffer curve. At a tax rate of 70%, the tax revenue will definitely be ________.

5) _______

• less than $1000 B) greater than $1300
• between 1000 and 1300 D) $1150

The Effect of Trade Policy 6) Price Quantity demanded Quantity supplied

$30 200 200

18 270 150

8 310 130

The table presents data for the domestic market for electric razors. Under autarky, the domestic price of an electric razor is $30. With free trade the price of an electric razor is $8 and after a tariff is imposed the price is $18. After the tariff is imposed, this country will import ________ electric razors.

6) _______

A) 50 B) 70 C) 120 D) 270

Reserves, Deposits and the Money Multiplier 7) Suppose you deposit $8000 of currency into your checking account at your bank and the required reserve ratio (RR) is 2%. As a result of your deposit, checking account deposits in the banking system as a whole (including your original deposit) could eventually increase up to a maximum of ________.

7) _______

A) $8000 B) $200,000 C) $400,000 D) $7840

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Effect of Inflation on the Short-Run Phillips Curve 8) Inflation rate (percent per year) Unemployment rate (percent)

9 5.5

4 7.5

Refer to the data in the table for the short-run Phillips curve. The short-run and long-run Phillips curves intersect at an inflation rate of 9 percent per year and an unemployment rate of 5.5 percent. The Fed announces its intention to decrease inflation from 9 percent to 4 percent per year, and it succeeds. If expectations of inflation are reduced to 7 percent by the Fed's announcement, the rate of unemployment will be ________ percent in the short run.

8) _______

• less than 5.5 B) 5.5
• between 5.5 and 7.5 D) 7.5

Rational-Expectations Theory 9) Short-Run Phillips Curve Long-Run Phillips Curve Inflation Rate (%) Unemployment Rate (%) Inflation Rate (%) Unemployment Rate (%)

0 10 0 6

3 6 3 6

6.1 3 6.1 6

Refer to the data in the table. If workers and firms have rational expectations, an expansionary monetary policy will cause short-run equilibrium to occur at an inflation rate of ________ percent and an unemployment rate of ________ percent.

9) _______

A) 3; 6 B) 6.1; 6 C) 6.1; 3 D) 3; 3

The Bond Market 10) If a corporate bond with a face value of $20,000 pays yearly coupon payments of $1000, what is the coupon rate? (Round to the nearest tenth.)

10) ______

A) 5.0% B) 2.0% C) 20.0% D) 0.2%

Using Price Indexes to Correct for Inflation 11) Suppose your grandmother earned a salary of $21,000 in 1975. If the CPI was 53 in 1975 and is 264 today, then the value of your grandmother's salary in today's dollars is approximately ________. (Round to the nearest dollar.)

11) ______

A) $11,130 B) $4216 C) $4,431,000 D) $104,604

Measures of Unemployment 12) If the working-age population is 235 million, the number of people employed is 180 million, and the number of people unemployed is 25 million, then the unemployment rate is ________.(Round to the nearest tenth when appropriate.)

12) ______

A) 5.7% B) 12.2% C) 13.9% D) 10.6%

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Effect of Inflation on the Short-Run Phillips Curve 13) Inflation rate (percent per year) Unemployment rate (percent) 12 5

• 7

Refer to the data in the table for the short-run Phillips curve. The short-run and long-run Phillips curves intersect at an inflation rate of 12 percent per year and an unemployment rate of 5 percent. The Fed announces its intention to decrease inflation from 12 percent to 3 percent per year, and it succeeds. If the assumptions of the rational expectations school hold true and if the Fed's announcement is credible, then the rate of unemployment will be ________ percent in the short run.

13) ______

• less than 5 B) 5
• between 5 and 7 D) 7

The Costs of Inflation 14) If you want to make a 11% real return on a loan that you are planning to make and the expected inflation rate during the period of the loan is 6%, then you should charge a nominal interest rate of ________.

14) ______

A) -5% B) 5% C) 17% D) 11%

The Federal Reserves Tools of Monetary Control 15) If a bank receives a $10 million discount loan from the Federal Reserve, then the bank's reserves will initially ________.

15) ______

• increase by less than $10 million B) not change
• increase by $10 million D) increase by more than $10 million

Effect of Planned Spending on the GDP 16) Consumption spending $36 Planned investment spending 8 Unplanned investment spending 1 Government purchases 11 Net export spending -3

Given the data in the table, what is GDP?

16) ______

A) $58 B) $53 C) $59 D) $52

Disposable Income, Consumer Spending and the Aggregate Consumption Function 17) If consumption increases by $45 billion when disposable income increases by $80 billion, then the slope of the consumption function is ________. (Round to the nearest hundredth.)

17) ______

A) 1.78 B) 1.56 C) 0.56 D) 0.44

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