Instructions:

· This is a closed-book exam. No electronic devices but only simple calculators are allowed. You will be given 55 minutes to complete 25 multiple-choice questions.

· Please keep this exam packet and submit your scantron.

On your scantron:

· Under "name" clearly fill out your last name then your first name; then bubble in the correct letters

· Under " special code" fill out the special code associated with your recitation as seen below

· Under "identification number" fill out your OSU e-mail number (i.e. if you are [email protected] fill in "112")

· Please use #2 (or HB) PENCIL only. Violating this can result in a zero score for the exam.

For example, Jane Smith (smith.112) is a student in Shi Ryoung Chang’s recitation session on Friday 12:40 PM ~ 1:35 PM at Schoenbaum Hall 220. Her scantron will look like the picture on the back of this sheet.

!!!!!!! Check “A” printed at the top !!!!!!!

--- Name must match your name on Carmen ---

1) When aggregate expenditure is more than GDP, which of the following is true?

A) There was an unplanned decrease in inventories.

B) Firms spent less on capital goods than they planned.

C) Households bought fewer new homes than they planned.

D) All of the above must be true when aggregate expenditure is more than GDP.

2) If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is

A) 0.9.

B) 0.8.

C) 0.75.

D) 0.6.

3) If planned aggregate expenditure is less than total production

A) actual inventories will equal planned inventories.

B) firms will experience an unplanned increase in inventories.

C) GDP will increase.

D) the economy is in equilibrium.

4) If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then

A) the multiplier is 0.1.

B) the multiplier is 1.

C) the multiplier is 10.

D) the multiplier is 100.

5) If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then

A) investment spending will fall.

B) investment spending will rise.

C) investment spending will remain unaffected.

D) investment spending will rise and then fall.

6) The recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.

B) This will move the economy down along a stationary aggregate demand curve.

C) This will shift the aggregate demand curve to the left.

D) This will shift the aggregate demand curve to the right.

7) A decrease in the price level will

A) shift the aggregate demand curve to the left.

B) shift the aggregate demand curve to the right.

C) move the economy up along a stationary aggregate demand curve.

D) move the economy down along a stationary aggregate demand curve.

8) The long-run aggregate supply curve will shift to the right if

A) the economy experiences technological change.

B) there is a decrease in population.

C) the economy experiences high levels of inflation.

D) net exports decrease.

9) Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result

A) workers will be willing to take lower wages next year.

B) the purchasing power of wages will rise if wages increase by 3%.

C) the short-run aggregate supply curve will shift to the left as wages increase.

D) aggregate demand will increase by 3%.

10) Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. Which of the following will happen in the short run?

A) Output will decline.

B) Prices will decline.

C) Unemployment will decline.

D) The aggregate demand curve will shift to the left.

11) Suppose the economy is at point A. If investment spending increases in the economy, where will the eventual long-run equilibrium be?

A) A

B) B

C) C

D) D

12) A decrease in investment causes the price level to ________ in the short run and ________ in the long run.

A) increase; increase further

B) increase; decrease

C) decrease; decrease further

D) decrease; increase

13) Dollar bills in the modern economy serve as money because

A) they are backed by the gold stored in Fort Knox.

B) they can be redeemed for gold by the central bank.

C) they have value as a commodity independent of their use as money.

D) people have confidence that others will accept them as money.

14) If households and firms decide to hold less of their money in checking account deposits and more in currency, then initially, the money supply

A) will not change.

B) will increase.

C) will decrease.

D) may increase or decrease.

15) Which of the following is counted as a liability for a bank?

A) customer deposits

B) bank reserves

C) securities

D) bank loans

16) A central bank can help stop a bank panic by

A) raising the required reserve ratio.

B) calling in consumer loans.

C) acting as a lender of last resort.

D) decreasing income taxes.

17) If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?

A) unit of account

B) store of value

C) certificate of gold

D) medium of exchange

18) Which of the following are goals of monetary policy?

A) maximizing the value of the dollar relative to other currencies, economic growth, and high employment

B) price stability, maximizing the value of the dollar relative to other currencies, and high employment

C) price stability, economic growth, and high employment

D) price stability, economic growth, and maximizing the value of the dollar relative to other currencies

19) If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run.

A) reduce; raise

B) increase; lower

C) increase; raise

D) reduce; lower

20) From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely

A) decrease interest rates.

B) increase interest rates.

C) decrease income tax rates.

D) increase income tax rates.

21) If the Federal Reserve raises or lowers interest rates too late, it could result in a ________ policy that destabilizes the economy.

A) fiscal

B) budgetary

C) procyclical

D) countercyclical

22) The hypothetical information in the table shows what the values for real GDP and the price level will be in 2021 if the Fed does not use monetary policy. Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2021?

A) The trading desk should sell Treasury securities.

B) The Fed should lower the target for the federal funds rate.

C) The Fed should pursue contractionary policy.

D) The Fed should lower capital gains taxes.

23) In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

A) lower interest rates.

B) raise interest rates.

C) lower income taxes.

D) raise income taxes.

24) When the Federal Open Market Committee conducts monetary policy, it sets the target range for

A) the federal funds rate

B) the interest on reserve balances rate

C) the overnight reverse repurchase agreement offering rate

d) open market operations

25) Which monetary policy implementation tool is the primary tool the Fed uses to steer the federal funds rate into the Federal Open Market Committee’s target range?

A) open market operations

B) Interest on reserve balances

C) Overnight reverse repurchase agreement facility

D) Discount rate

< 2 Extra credit Questions >

26) What is the most recent annualized economic growth rate for the U.S. economy?

A) -2.3%

B) 2.3%

C) 1.5%

D) 4.9%

27) Over the past year, the Fed has

A) used contractionary policy to increase interest rates

B) used contractionary policy to decrease interest rates

C) used expansionary policy to increase interest rates

D) used expansionary policy to decrease interest rates