ECN202: Exam3
1. If you have come to class, you know that I talked about the fall - and rise - of China, which offers us great insight into what makes a
country grow. Which of the following factors is the best explanation of China's falling behind after the 18th century?
a. Location
b. openness
c. natural resources
d. religion
2. What was the factor most responsible for the large increase in interest rates in the late 1970s?
a. default risk
b. inflation risk
c. liquidity risk
d. maturity risk
3. What was it that explains “How Party of Budget Restraint Shifted to ‘No New Taxes,’ Ever.”
a. When McCain lost the presidential election in 2008
b. When Reagan was elected president in 1980
c. When President Bush lost the election to Clinton in 1992
d. When Bush was elected in 2000
4. What theory is being described in the quote: "to master inflation, proper monetary discipline is essential, with publicly stated targets
for the growth of the money supply?"
a. the multiplier
b. crowding out
c. monetarism
d. convergence
5. Ronald Reagan was concerned with the influence of the vast array of regulations on the US economy. He felt that the regulations were
strangling the country. Using his logic, the best way to show the impact of a substantial reduction in the regulatory burden would be best
represented by ____?
a. an outward shift in AD
b. an inward shift in AD
c. an outward shift in AS
d. an inward shift in AS
6. "As late as the end of the fist millennium of our era, the civilizations of ___ were well ahead of ___ in wealth and knowledge. ...Five
hundred years later the tables had turned." Fill in the blanks.
a. Africa
Europe
b. North America
Asia
c. Asia
Europe
d. Africa
South America
7. Let's see what you can say about the behavior of
the Fed based upon the graph above. Given what we
know about the market for funds, which of the
following makes the most "economic" sense as an
explanation of the movement of interest rates in
2008?
a.
b.
c.
d.
The Fed bought government securities
The Fed lowered taxes
The Fed raised the required reserve rate
Money demand increased sharply
8. Which of the following is evidence in “Do Tax Cuts Lead to Economic Growth?” that tax cuts do not promote economic growth?
a. Strong economic growth after Clinton increased income taxes in the mid 1990s
b. Strong economic growth after Bush II cut income taxes in the early 2000s
c. Strong growth during the 1930s while Roosevelt was president
d. Strong economic growth in 1950s when Bush I was president
Before War
Banana
Republic
Conch
Republic
After War
price of ounce
of gold
price of shirt
price of shirt
in terms of
gold
price of ounce
of gold
price of shirt
price of shirt
in terms of
gold
2P
4P
2 oz
6P
6P
1 oz
4S
6S
1.5 ounce
4S
6S
1.5 oz
9. Based on this table, which of the following is a true statement for the Banana and Conch Republics that have Peels (P) and Shells (S)
as currency.
a. Inflation during the war in the Banana Republic raised its prices, and as a result of a devaluation of its currency after the war, its
shirts were less expensive than those produced in the Conch Republic
b. Deflation during the war in the Banana Republic raised its prices and a devaluation of its currency after the war made its shirts
cheaper than those produced in the Conch Republic
c. Inflation during the war in the Conch Republic raised its prices and despite devaluation of its currency after the war, its shirts were
more expensive than those produced in the Banana Republic
d. Inflation during the war in the Conch Republic raised its prices and a devaluation of its currency after the war made its shirts
cheaper than those produced in the Banana Republic
10. The Reagan administration rode to power in 1980 proclaiming the virtues of supply side economics. This branch of economic theory
got its name from the emphasis that its practitioners placed on the supply side of the economy that had been ignored by the Keynesians.
Which of the following would be a policy you would expect to be supported by the supply-siders?
a. an increase in taxes on high income individuals
b. a decrease in unemployment benefits
c. a decrease in the investment tax credit
d. an increase in corporate income taxes
11. The headline read, “Yellen Says Job Weakness Forestalls Raising Rates.” If the Fed chair decided to raise the interest rate, which of
the following would she do?
a. lower taxes
b. sell government securities
c. lower government spending
d. lower the required reserve rate
12. Which of the following would be the most likely explanation for
the value of the dollar relative to the Mexican peso in the Great
Recession?
a.
b.
c.
d.
the stock market in Mexico was doing well relative to that in the
US, which attracted foreign investors to Mexico
the Mexican economy was doing well as a result of a booming
export sector
the Fed lowered interest rates making US Treasuries a more
inviting investment for worldwide investors
the Mexican economy suffered a severe recession and this
decreased investor confidence in the Mexican economy.
13. Which one of the following statements would be a debit (- value) in the Current Account of the US?
a. foreign investors buy American bonds to balance your investment portfolio
b. foreign investors sell American bonds to due to fear of a recession in the US
c. Chinese graduate students in Beijing University who purchase of Microsoft Office
d. a URI student travels to China for study abroad
14. Fracking in the US has reduced oil imports in the US. If the graphs above are of the market for US$s on the foreign exchange, then
which graph would best represent the impact of the reduced imports on US $?
a. A
b. B
c. C
d. D
15. The Fed has been engaged in a process known as Quantitative Easing to get the US economy moving. If the graphs above are of the
market for funds in the US, then which graph would best represent the impact of Quantitative Easing on interest rates?
a. A
b. B
c. C
d. D
16. The drought in California is BIG and it is affecting the price of agricultural products. If the graphs above are of the market for
agricultural products, then which would be the best representation of the drought’s impact on agricultural prices?
b. A
b. B
c. C
d. D
17. The headline read "China Slows Purchases of U.S. and Other Bonds." How would you show the impact of this on the value of the
US$ if the above the graphs above are of the market for the US$?
c. A
b. B
c. C
d. D
18. There were BIG differences between the Reagan and Kennedy tax cuts. In terms of the AS-AD diagrams above, the Kennedy tax cut
would best be represented by Graph ___, while the best graph for the Reagan tax cut would be Graph ____.
a. B
A
b. B
C
c. A
B
d. A
D
19. Based on the analysis of interest rates,
which of the following statements is true?
a.
b.
c.
d.
If the upper graph represents the rate on
Baa corporate bonds, the lower graph
represents the rate on Aaa bonds
If the upper graph represents the rate on
German bonds, the lower graph
represents the rate on Greek bonds
If the upper graph represents the rate on
US Treasury bonds, the lower graph
represents the rate on Aaa bonds
If the upper graph represents the rate on
short-term Treasury bonds, the lower
graph represents the rate on long-term
Treasury bonds
20. After the trouble in the Ukraine that led to Russia’s annexation of Crimea there were some troubles with the Russia economy
described as follows. “With inflation rising, growth stagnating, the ruble and stock market plunging, and billions in capital fleeing the
country for safety, the economy is teetering on the edge of recession, as the country’s minister of economic development acknowledged
on Wednesday.” There are lots of problems here, but let’s look at the problem with the ruble, Russia’s currency, which has been falling
as investors pull their money out of Russia. If we were looking at a S&D model of the ruble, how would we show the behavior of foreign
investors?
a. Increase demand
b. decrease demand
c. increase supply
d. decrease supply
21. Which of the following statements would be true
based on the above graph?
a.
b.
c.
d.
in 1994 the yuan strengthens and this makes US
goods more expensive in China
in 1994 the yuan strengthens and this makes US
goods less expensive in China
in 1994 the yuan weakens and this makes US goods
more expensive in China
in 1994 the yuan weakens and this makes US goods
less expensive in China
22. The 1980s represented an important ideological shift in US economic thinking and policy. Which of the following was not one of the
goals of the Reagan revolution when Reagan assumed control of the presidency?
a. move emphasis from short-term to long-term
b. focus more on AS that AD
c. reduce size of US government
d. increase emphasis on building US manufacturing
23. This is most likely a graph of ___?
a.
b.
c.
d.
The interest rate on 6-month government bonds.
The US government tax revenue
The money supply
The trade deficit
24. In 2009 the US economy fell into a deep recession driving down the stock market, and this made Chinese investors very nervous
about their investments in the US. As a result they decided to reduce their purchases of US stock. How would you show in a S&D
diagram for the US $?
a. an outward shift in the supply of US $s that would drive up the price of $s
b. an outward shift in the demand for US $s that would drive up the price of $s
c. an inward shift in the supply of US $s that would drive down the price of $s
d. an inward shift in the demand for US $s that would drive down the price of $s
25. There was much fuss made of the "new economy" that emerged by the mid 1990s because it represented a significant turnaround
from what we saw earlier. Which is the most appropriate description of the differences in growth in the US before and after 1994?
a. growth was faster in the earlier period and less of it came from productivity growth
b. growth was slower in the earlier period and less of it came from productivity growth
c. growth was faster in the latter period and less of it came from productivity growth
d. growth was slower in the latter period, but more of it came from productivity growth
26. In the late 1970s there was a BIG ideological shift that took place at the Fed when Fed Chair Paul Volcker announced a policy shift
that moved the Fed policy toward monetarism. Which of the following best reflects the shift in attitudes at the Fed? The Fed _______
a. should refocus its efforts on maintaining the level of unemployment at its full employment rate
b. should refocus its attention on the money supply and stop trying to stabilize interest rates
c. should focus its attention on the budget deficit
d. should stop focusing its attention on stabilizing the money supply and focus on interest rates
27. It has been observed that monetary policy is more effective than people originally thought at increasing income and decreasing
unemployment. Which of the statements below would explain the increased effectiveness of monetary policy?
a. consumption spending was found to be less sensitive to income - the MPC was smaller
b. government spending was lower
c. investment spending was found to be more responsive to interest rate changes
d. the economy was operating near capacity so the AS curve was very steep
28. You can see in the diagram above that from the mid
1990s to the mid 2000s China was doing what it needed
to do to fix its exchange rate relative to the US $. Which
of the following would be the best explanation of what
China would do to keep the exchange rate constant?
a.
b.
c.
d.
China would use its current account surplus to buy
US Treasury securities
China would use its current account deficit to buy
US Treasury securities
China would use its capital account surplus to sell
US Treasury securities
China would use its capital account deficit to sell
US Treasury securities
29. It is important for you to know about the capital market, and one of the important measures of the capital market is the interest rate the price of money. In fact there are many interest rates, and based on the theory of interest rates discussed in this course, which of the
following would NOT be true?
a. Interest rates tend to be positively correlated with inflation rates
b. the yield curve tends to have a positive slope
c. real interest rates tended to peak in the early 1980s
d. the maturity effect helps explain why interest rates tend to be higher for younger workers
30. In what decade was the US economy buffeted by two adverse supply shocks?
a. 1930s
b. 1960s
c. 1970s
d 1980s e. 1990s
31. You probably noticed tuition costs have been rising, which is not good news, but at least you know how to explain the rapid
increase. The theory that would best explain the rising tuition costs would be______.
a. crowding out
b. cost-disease of the service sector
c. Hume's law
d. quantity theory of money
32. There are many factors affecting a country’s growth rate, and the satellite map of Korea emphasizes the importance of ____.
a. economic systems
b. religion
c. natural resources
d. savings