Macroeconomics Answers

If inflation is high, this will do what to money’s real value? As a result of the change in the real value of money short-run equilibrium output will _____.

A. reduce; increase 

B. increase; decrease 

C. reduce; decrease 

D. increase; increase

What happens to the demand for money if real income declines. It will _____. 

What happens to the demand for money if the overall price level declines. It will _____.

A. increase; increase

B. increase; decrease

C. increase; not change

D. decrease; decrease

Consider the following data:

PAE = 4,500 + 0.7Y – 25,000r

Interest rate = 6%

Y* = 11,750

The Fed should _____ the interest rate in order to close what type of gap.

Planned spending is as follows: C = 600 + 0.7(Y – T) – 200r, IP = 200 – 500r, G = 200, NX = 10 and T = 150. Which of the following also states PAE?

A. [905 – 700r] + 0.3Y

B. [905 – 700r]

C. [910 – 700r]

D. [905 – 700r] + 0.7Y

Currently, commercial banks have a 5% reserve/deposit ratio. The Federal Reserve decreases the reserve ratio to 3%. This means banks could _____ loans and deposits. It also means the money supply could _____.

A. increase; increase

B. increase; decrease

C. decrease; increase

D. decrease; decrease

Keynesian economists would like PAE to go up by $20 billion. The mpc = 0.80 so government spending needs to go up by _____ OR taxes need to go down by _____.

A. $20 billion; $20 billion

B. more than $20 billion; more than $20 billion

C. less than $20 billion; less than $20 billion

D. $20 billion; more than $20 billion

According to Keynesian economists, closing a short-run expansionary gap of $5 million means government purchases will need to be:

A. increased by $5 million.

B. decreased by $5 million.

C. increased by more than $5 million.

D. decreased by less than $5 million.

According to Keynesian economists, closing a short-run expansionary gap of $5 million means government purchases will need to be:

A. increased by $5 million.

B. decreased by $5 million.

C. increased by more than $5 million.

D. decreased by less than $5 million.

Birdland has autonomous consumption of 600. Additional data for Birdland:

mpc = 0.70

net taxes = 50

government purchases = 100

planned investment = 100

net exports = 40

Given all of this information, induced expenditures = _____:

A. 0.70Y.

B. 990 + 0.30Y.

C. 0.80Y.

D. 805 + 0.70Y.

The mpc = 0.75 and disposable income goes up by $100. This means consumption will go up by _____.

A. $13.33

B. $25

C. $75

D. $133