Intro to Macroeconomics

Final Bootcamp

Assignment 7

The multiplier model is:

Answers: A.
a macroeconomic theory used to explain how output is determined in the short
run.
B.
a microeconomic theory used to explain how output is determined in the short
run.
C.
a macroeconomic theory used to explain how employment is determined in the
short run.
D.
a microeconomic theory used to explain how wages are determined in the short
run.
E.
none of the above
• Question 2

Which of the following should be expected to shift the aggregate demand curve to the right?

Answers: A.
an increase in government spending.
B.
a reduction in net exports.

C.
a reduction in labor force participation.
D.
an increase in taxes.
E.
a decrease in the money-supply.

• Question 3
 Which of the following would contribute to a rightward shift in the aggregate demand
curve?
Answers: A.
An increase in the money supply.
B.
An increase in government purchases of goods and services.
C.
Technological advances.
D.
All of the above.
E.
Choices A and B only.
• Question 4

The aggregate demand curve relates total spending to the price level.
Answers: A.
True
B.
False
• Question 5

All business cycles are alike.

Answers: A.
True
B.
False
• Question 6
v
A recession is the same as a depression except for scale and duration.

Answers: A.
True
B.
False

• Question 7
 Employment usually falls sharply in the early stages of a recession.

Answers: A.
True
B.
False
• Question 8
Hyperinflation occurs when prices fall by 10 percent or more per month.

Answers: A.
True
B.
False
• Question 9

The "trough" of the business cycle comes when economic activity is at its lowest.

Answers: A.
True
B.
False
• Question 10

Which of the following is a reason why the aggregate demand curve should be drawn
downward-sloping?

Answers: A.
Higher prices reduce potential GDP by reducing labor force participation.
B.
Higher prices cause interest rates to fall, thereby depressing investment.
C.
Higher prices cause interest rates to rise, thereby depressing investment.
D.
Higher prices inspire increased labor force participation and therefore increase
consumption expenditures.
E.
None of the above makes any sense in explaining the negative slope of an aggregate
curve.

• Question 11
 The two main phases of the business cycle are:

Answers: A.
peaks and troughs.
B.
contraction and expansion.
C.
depression and recession.
D.
peaks and expansion.
E.
troughs and expansion
• Question 12

The effects of business cycles tend to:

Answers: A.
be limited to the construction industry.
B.
limit themselves to retail sales or construction.
C.
come and go in a highly regular rhythm.
D.
reach even non-economic matters like births and alcoholism.
E.
start with consumption slowdowns and accelerate through nondurable goods.
• Question 13

Which of the following situations would you expect to see during a period of economic
expansion?

Answers: A.
Falling tax receipts.
B.
Falling corporate profits.
C.
Falling unemployment claims.
D.
Falling stock prices.
E.
 All of the above.
• Question 14

Economic forecasters regularly use:

Answers: A.
quarterly measurements of national income, GDP, and construction.
B.
the Federal Reserve Board's index of production.
C.
weekly department store sales figures.
D.
consumer surveys.
E.
all of the above.
• Question 15

A depression is:

Answers: A.
a recession but larger in scale and duration.
B.
smaller than a recession.
C.
a recurring period of decline in employment
D.
not possible since the discovery of macroeconomics.
E.
none of the above.
• Question 16

Which of the following are typical characteristics of a recession?

Answers: A.
Consumer purchases decline sharply.
B.
Business inventories of durable goods increase unexpectedly.
C.
The demand for labor falls.
D.
 All of the above.
E.
Choices A and B only.
• Question 17

Which of the following are typical characteristics of a recession?

Answers: A.
The length of the average workweek declines.
B.
Inflation slows.
C.
Business profits fall sharply.
D.
All of the above.
E.
None of the above.
• Question 18
A recession is:

Answers: A.
a recurring period of decline in total output, income, and employment lasting from 6
to 12 months and marked by contractions in many sectors of the economy.
B.
a recurring period of incline in total output, income, and employment lasting from 6
to 12 months and marked by contractions in many sectors of the economy.
C.
a recurring period of decline in total output, income, and employment. lasting from 6
to 12 hours and marked by contractions in many sectors of the economy.
D.
not possible since the discovery of macroeconomics.
E.
none of the above.
• Question 19

The multiplier-accelerator theory:

Answers: A.
suggests that business cycles may be self-generating.
B.
is an external theory of business cycles.
 C.
is related primarily to fluctuations in the automobile industry.
D.
follows from shocks to the aggregate demand curve.
E.
is one of the political theories of the business cycle.
• Question 20

Theories which attribute the source of the business cycle to the fluctuations of factors outside
the economic system are called?

Answers: A.
internal theories.
B.
exogenous theories.
C.
system theories.
D.
business theories.
E.
none of the above.
• Question 21

After the 2011 revolution in Egypt, there was a relatively brief period of time
when unemployment rates surged, consumption decreased, investment declined,
and business profits and output fell. Egypt was experiencing a period of:

Answers: A.
recession
B.
depression
C.
hyperinflation
D.
expansion
E.
None of the above are valid answers.

• Question 22
 Being at the point of equilibrium between total expenditures and gross domestic
product (GDP) means that:

Answers: A.
the economy is at a break-even point.
B.
total investment and consumption spending, which represents the
demand, is equal to total output, which represents the supply.
C.
any point above it indicates a surplus.
D.
any point below it indicates a shortage.
E.
All of the above are valid answers.
• Question 23

According to the multiplier model, if Sarah invests EGP10 million in the

construction and operation of a new factory, we would expect that the gross
domestic product (GDP) to increase by more than EGP10 million.

Answers:
True
False
• Question 24

If Farah’s income increases by EGP 3,000 and her marginal propensity to save is
1/3, then the multiplier value would be estimated at:

Answers: A. 4

B. 3

C. 1

D. 2/3

E. None of the above are valid answers.

• Question 25

At a state of disequilibrium where consumer spending exceeds total output,

producers are expected to increase their supply.
Answers:
True
False
 Answers

1- A
2- A
3- D
4- A
5- B
6- A
7- A
8- B
9- A
10- C
11- B
12- D
13- C
14- E
15- A
16- D
17- D
18- A
19- A
20- B
21- A
22- E
23- A
24- B
25- A

Assignment 8
• Question 1

If all commercial banks were forced to keep 100 percent reserves on checking and saving
accounts:

Answers: A.
no financial institution would make loans.
B.
multiple money creation would not be possible.
C.
people could not have the modern convenience of check writing.
D.
all of the above would be true.
E.
none of the above would be true.
• Question 2

Assuming a required 20 percent reserve ratio, a small bank which receives a cash deposit of
$1,000 is in a position to:

Answers: A.
lend out an extra $5,000.
B.
lend out an extra $4,000.
C.
lend out an extra $1,000.
D.
lend out an extra $800.
E.
lend out an extra $200.
• Question 3

If a deposit of $100 in the banking system can lead to a total expansion in bank deposits of
$400, then the required reserve ratio must be:

Answers: A.
40 percent.
B.
400 percent.
C.
 25 percent.
D.
4 percent.
E.
2.5 percent.
• Question 4

Required reserve ratios:

Answers: A.
exist primarily to ensure that deposits are safe.
B.
exist to penalize banks that are members of the Federal Reserve System.
C.
exist primarily to help the Fed control the money supply.
D.
exist for all of the above reasons.
E.
exist for none of the above reasons.
• Question 5
The main function of legal required reserve ratios is:

Answers: A.
to enable the Fed to control the growth of the money supply.
B.
to make deposits payable upon demand.
C.
to increase competition among financial institutions.
D.
to make deposits safe and liquid.
E.
none of the above.
• Question 6

Assuming no excess reserves, if the public converts $50 million of demand deposits into
currency, this will, in the end:

Answers: A.
increase the money supply.
B.
 increase bank reserves.
C.
increase bank excess reserves.
D.
require banks to reduce their outstanding loans.
E.
leave the assets of the public unchanged.
• Question 7
The definition of M1 includes:

Answers: A.
coins, currency, and time deposits.
B.
coins, currency, and demand deposits.
C.
coins, currency, and all bank deposits.
D.
all currencies, both in banks and in the hands of the public.
E.
none of the above.
• Question 8

The value of equities are:

Answers: A.
fixed in dollar amounts.
B.
fixed in real terms.
C.
set by the corporations that issue them.
D.
set by the federal government.
E.
determined by the forces of supply and demand in the market.
• Question 9
1 out of 1 points
When economists talk about a random walk they mean:

Answers: A.
the unpredictable nature of changes in interest rates.
 B.
the unpredictable nature of changes in the money supply.
C.
the unpredictable nature of movements in stock prices.
D.
all of the above.
E.
none of the above.
• Question 10

Regardless of what you pay for a bond, you get paid back the value of the original principal,
plus interest, when it matures.

Answers: A.
True
B.
False
• Question 11

An asset is said to be liquid if it can be converted quickly into cash.

Answers: A.
True
B.
False
• Question 12

The riskiness of an investment is measured by the standard deviation of the returns on the
investment.

Answers: A.
True
B.
False
• Question 13
M1 includes checking accounts but not saving accounts.

Answers: A.
True
B.
False
• Question 14

The commercial bank, not some governmental agency, is the ultimate originator of the money
supply.

Answers: A.
True
B.
False
• Question 15

As economies develop, people generally no longer barter one good for another.

Answers: A.
True
B.
False
• Question 16

If banks held 100 percent reserves against deposits, there would be no net change in the money
supply when currency was withdrawn from these banks by the public.

Answers: A.
True
B.
False
• Question 17
The inconvenience of the barter system comes from the need for a double coincidence of
wants.

Answers: A.
True
B.
False
• Question 18

Most paper currency in the United States is backed by precious metals such as gold or silver.

Answers: A. True

B. False
• Question 19

Holding money is costless; this is why it can be a good store of value.

Answers: A.
True
B.
False
• Question 20

There is no limit to the amount of money that the banking system can create through the
multiple expansion of bank deposits.

Answers: A.
True
B.
False
• Question 21
The Commercial International Bank (CIB) utilizes some of the deposits made as
loans for other business entities and people. It accordingly:

Answers: A.
constitutes a financial intermediary.
B.
is contributing to the creation of money.
C.
holds 100 percent reserves.
D.
All of the above are valid answers.
E.
Only answer options “A” and “B” are valid.
• Question 22

If Ahmed wants to invest his money is a low-risk financial instrument, he should

invest in stocks.

Answers: True

False
• Question 23

All of the following are depictions of the functions of the financial system except
for:

Answers: A.
Leena registering for a homeowners’ insurance that covers interior and
exterior damages to her North Coast chalet.
B.
Karim, who is an Egyptian citizen living in Germany, transferring a
portion of his salary to his family in Egypt.
C.
the clearinghouse in the stock market debiting (i.e. removing money
from) Mariam’s bank account after she bought stocks in Telecom Egypt
and crediting (i.e. depositing the money in) Telecom Egypt’s account.
D.
A hedge fund in which private investors pool their money together to
buy a portfolio of stocks in 15 companies.
E.
All of the above are valid answers.
• Question 24

Checking accounts, also known as demand deposit accounts, are only used as a
store of value.

Answers: True

False
• Question 25
0 out of 1 points
If Hana deposited EGP 1 million into a checking account in Audi Bank last
January, this money should have been recorded as a ___________ in the bank’s
balance sheet. If Audi Bank decided to hold EGP 700,000 as reserves and lend
out EGP 300,000, these values would be recorded as ___________ in the bank’s
balance sheet.

Answers: A.
Liabilities; Assets.
B.
Assets; Liabilities
C.
Liabilities; Liabilities.
D.
Assets; Assets.
E.
Investment; Securities.
 Answers

1- B
2- D
3- C
4- C
5- A
6- D
7- B
8- E
9- C
10- A
11- A
12- A
13- A
14- B
15- A
16- A
17- A
18- B
19- B
20- B
21- E
22- B
23- E
24- B
25- A
 Assignment #9

• Question 1

Which of the following items is not an asset of the Central Banks?

Answers: A.
Cash of member banks.
B.
Government securities.
C.
Loans to member banks.
D.
All the above are assets of the Central Banks.
• Question 2
Which of the following are objectives of Central Banks?

Answers: A.
to maintain economic stability.
B.
low and stable inflation.
C.
low unemployment.
D.
stable exchange rate.
E.
all of the above.
• Question 3

By purchasing government securities in the open market, the Federal Reserve authorities hope
ultimately to accomplish:

Answers: A.
an increase in bank reserves larger than the original purchases by the appropriate
multiple.
B.
an increase in bank reserves by the amount of the original purchase.
C.
a decrease in bank reserves.
 D.
an equal increase in bank reserves and Federal Reserve notes.
E.
an increase in Federal Reserve notes larger than the original purchases by the
appropriate multiple.
• Question 4

The instrument of monetary control best suited to offsetting a reduction in commercial bank
reserves due to weekly increases in currency in circulation is:

Answers: A.
reserve requirements.
B.
open-market operations.
C.
terms of consumer credit.
D.
margins on security loans.
E.
moral suasion.
• Question 5

Assume that the banking system keeps no excess reserves and that the reserve requirement is
1/6. The sale of $1 billion of securities by the Federal Reserve Bank, if not accompanied by
any compensating action elsewhere, would:

Answers: A.
increase the quantity of money by $5 billion.
B.
decrease the quantity of money by $5 billion.
C.
decrease the assets and liabilities of the Federal Reserve Bank by $6 billion.
D.
decrease the assets and liabilities of the Federal Reserve Bank by $5 billion.
E.
decrease the assets and liabilities of the Federal Reserve Bank by $1 billion.
• Question 6

New reserves for the American commercial banking system can come into existence when:

Answers: A.
 aggregate demand falls.
B.
currency flows out of the country.
C.
the Federal Reserve sells an asset.
D.
the Federal Reserve buys an asset.
E.
individuals hold more of their money in the form of coin and currency.
• Question 7

When the United States pays for foreign (imported) goods:

Answers: A.
international reserves move out of the United States.
B.
there is no net change in international reserves since exporters are receiving reserves.
C.
the Fed is following a countercyclical monetary policy.
D.
foreigners are unable to absorb these dollars.
E.
foreigners are paid in gold rather than in U.S. dollars.
• Question 8
The largest asset of the Federal Reserve Banks is:

Answers: A.
gold certificates.
B.
discounts and loans to member banks.
C.
U.S. government securities.
D.
Federal Reserve notes.
E.
member bank reserves.

• Question 9
 When a central bank wishes to increase the quantity of money held by the public, it:

Answers: A.
sells securities.
B.
buys securities.
C.
sells goods or services.
D.
buys goods or services.
E.
does none of the above, since its function is not to change the quantity of publicly
held money.
• Question 10

Reserves of the American banking system can be reduced if:

Answers: A.
the price of gold falls.
B.
the public's preferences switch from deposits to currency.
C.
foreign currency flows into the United States.
D.
the real interest rate rises in the United States.
E.
the Federal Reserve buys an asset.
• Question 11
The effectiveness of monetary policy in a recession will be reduced or destroyed if:

Answers: A.
interest rates cannot be forced down much because the level of borrowing is highly
responsive to small changes in the level of the interest rate.
B.
the Fed finds that security prices start to go up as soon as it begins its easy-money
operations.
C.
the asset or liquidity demand for money is very low.
D.
 interest rates are so low that individuals are indifferent between holding money and
government bonds.
E.
the value of the multiplier is very high.
• Question 12

Which of the following is not a function of money?

Answers: A.
medium of exchange.
B.
unit of account.
C.
supply of reserves.
D.
store of value.
E.
all of the above are functions of money.
• Question 13

If Germany withdraws $1000 from an account it has in a U.S. commercial bank and takes the
money to Germany:

Answers: A.
the effect of the withdrawal on the money supply is no different from a domestic
withdrawal.
B.
the money supply will contract in the U.S.
C.
the money supply will grow in the U.S.
D.
the Fed has little ability to counteract the withdrawal.
• Question 14

A drop in the interest rate will cause the investment schedule to shift up and out.

Answers: A.
True
B.
False
• Question 15

Interest rates affect investment, but not consumption spending on consumer durables.

Answers: A.
True
B.
False
• Question 16

The balances kept on deposit at the Federal Reserve by commercial banks are considered
liabilities of the Federal Reserve.

Answers: A.
True
B.
False
• Question 17

An open-market purchase increases the liabilities of the Federal Reserve.

Answers: A.
True
B.
False
• Question 18
An open-market operation designed to increase the money supply would seek to purchase U.S.
government bonds.

Answers: A.
True
B.
False
• Question 19

If banks maintain a reserve ratio of 1 to 5, a $1 billion purchase of U.S. government securities

by the Federal Reserve will result in a $5 billion increase in the money supply.

Answers: A.
True
B.
 False
• Question 20

A Federal Reserve note is now backed by gold.

Answers: True

False
• Question 21

Open market operations are one of the major instruments of monetary policy.
Answers:
True
False
• Question 22

High interest rates encourage investment, since investors can earn more money.

Answers: True

False
• Question 23

Every modern country has a central bank.

Answers:
True
False
• Question 24

Use the following to answer questions 24-25:

Figure 24-1

In Figure 24-1, if the Fed tightens monetary policy:

Answers: A.
the money demand schedule will shift to the left.
B.
the money demand schedule will shift to the right.
C.
the money supply schedule will shift to the left.
D.
the money supply schedule will shift to the right.
E.
interest rates will remain unchanged.
• Question 25

In Figure 24-1 if the Fed increases the supply of money:

Answers: A.
interest rates should fall, investment spending should increase and GDP should
increase.
B.
interest rates should increase, investment spending should increase and GDP should
increase.
C.
interest rates should increase, investment spending should decrease and GDP should
decrease.
D.
interest rates should fall, investment spending should increase, but GDP would
remain unchanged.
 Answers

1- A
2- E
3- B
4- B
5- E
6- D
7- A
8- C
9- B
10- B
11- D
12- C
13- B
14- B
15- B
16- A
17- A
18- A
19- A
20- B
21- A
22- B
23- A
24- C
25- A