Practice Problems 8 - Youngstown State University

[Pages:2]ECON 2630 Spring 2013

Practice Problems 8

1. If the Fed wants to lower the interest rate, it will a. buy bonds and decrease the money supply b. buy bonds and increases the money supply c. sell bonds and decrease the money supply d. sell bonds and increase the money supply

2. If the aggregate expenditure line has shifted downward, which of the following is the most likely cause? a. There have been reports of good economic news. b. The Fed has conducted an open market sale of bonds. c. Income tax rates have been lowered. d. The Fed has conducted an open market purchase of bonds.

3. In the short-run macro model, an open-market purchase of bonds by the Fed will a. raise the interest rate, reduce spending, and increase output b. raise the interest rate, reduce spending, and decrease output c. lower the interest rate, reduce spending, and decrease output d. lower the interest rate, increase spending, and decrease output e. lower the interest rate, increase spending, and increase output

4. If government spending increases, which of the following is most likely to occur? a. GDP, money demand, the interest rate, and investment spending will all increase. b. GDP, money demand, the interest rate, and investment spending will all decrease. c. GDP, money demand and the interest rate will increase, while investment spending will

decrease. d. GDP, money demand and the interest rate will decrease, while investment spending will

increase.

5. Crowding out occurs a. when an increase in government spending crowds out tax revenues b. when an increase in government spending increases investment spending c. when an increase in government spending crowds out bonds d. when an increase in government spending crowds out consumer spending and investment

spending

ECON 2630 Spring 2013

6. Suppose the public expects the interest rate to fall. As a result, a. the interest rate will not change now b. the interest rate will fall in the future c. the bond price will rise now d. the bond price will fall now

7. Which of the following is an economic investment? a. Shares of corporate stock. b. U.S. savings bonds. c. Newly built houses. d. Bonds issued by private corporations.

8. According to the concept of the time-value of money: a. money is more valuable to a person the sooner it is received. b. money is more valuable to a person the later it is received. c. people are indifferent between receiving a given sum of money now versus receiving it later. d. there is no opportunity cost of receiving a sum of money later rather than sooner.

9. Which of the following statements best reflects the concept of present value? a. "The savings bond I bought five years ago is now worth $1000." b. "My $100 savings bond will be worth $200 in 10 years." c. "You owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now." d. "The $5000 in my savings account is worth less today than five years ago because of inflation."

10. Joe is saving money for a vacation he wants to take 5 years from now. If the trip will cost $1000 and he puts his money into a savings account paying 4 percent interest, compounded annually, how much would Peter need to deposit today to reach his goal without making further deposits? a. $961.54 b. $923.75 c. $867.81 d. $821.93

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