DATA VIEW: Indonesia March Inflation Eases; Policy On HoldName: Second Prelim ECON 102 – 25 April 2006Section Number:This exam has 20 multiple choice questions, 4 short answer questions and 2 essay questionsPart 1: Multiple Choice QuestionsOne point per question.Write the answers on the separate sheet provided. 1. An increase in oil prices, such as the oil shocks in the 70s, lead to _______ thereby causing ________a) a movement along the AS curve; cost-push inflationb) a leftward shift in the AS curve; demand-pull inflationc) a rightward shift in the AS curve; cost-push inflationd) a leftward shift in the AS curve; cost-push inflationAnswer: d2. In the 1930s, when Keynes was alive, a expansionary fiscal policy, taking everything else constant, would have led (in the short-run) to________a) a relative large increase in Y, a smaller increase in Pb) a relative large increase in P, a smaller increase in Yc) both Y and P increasing with an percentaged) only Y increasedAnswer: a3. If the aggregate supply curve is vertical in the long-run, _______ has (have) an effect on the aggregate output in the long runa) sometimes monetary and/or fiscal policy (i.e. it depends)b) monetary policy does but fiscal policy does notc) monetary policy does not but fiscal policy doesd) neither monetary policy nor fiscal policyAnswer: d4. Which of the following statements is correct:a) the money supply does not play a role in sustained inflationb) the Fed is “accommodating” when they decrease the money supply after the government has increased Gc) inflation initiated by an increase in aggregate demand is referred to as demand-pull inflationd) in order to avoid “crowding-out” after the government has increased G, the Fed often decreases the money supply in order to lower the interest ratesAnswer: c5. Employment tends to _______ when aggregate output ______a) rise, fallsb) rise; risesc) falls; rises1Name: Second Prelim ECON 102 – 25 April 2006Section Number:d) not change; fallsAnswer: b6. It was an empirical fact that in the 50s and 60s the inflation rate ________ when the unemployment rate _________. Today the relationship between those to variable can be described as ________a) falls; rises; strongly negative correlatedb) rises; rises; strongly negatively correlatedc) falls; rises; unstabled) rises; rises; unstableAnswer: c7. The ___________ lag for fiscal policy is generally ______ than it is for monetary policy.a) recognition; shorterb) recognition; longerc) implementation; shorterd) implementation; longerAnswer: d8. During periods of negative demand shocks, deficit target reductions such as those mandated in the Gramm-Rudman-Hollings Act would tend to:a) stimulate the economy and increase employment.b) result in additional recessionary declines in employment and income.c) stimulate defense spending.d) have an automatic stabilizing impact upon the economy.Answer: b9. In which cases would the deficit of a government be considered problematic by the majority of the economists?a) when the deficit was the result of mainly capital spending (eg infrastructure)b) when the deficit was brought about by a stabilization program during a probably temporary recessionc) when the deficit adds to an existing budget surplusd) when the private and public lenders (i.e. IOU holders) loose faith in the capacity of the government to pay back its debtsAnswer: d10. A bond isa) a promise to pay back a loan over an unspecified periodb) allows the firm to access funds with mo liabilitiesc) the only way a firm can raise fundsd) a document that promises to pay back a loan under specified terms over a specified period of timeAnswer: d2Name: Second Prelim ECON 102 – 25 April 2006Section Number:11. The market price of bonds can fluctuate depending ona) how many bonds were soldb) who bought the bondsc) the amount of the coupond) the interest rate Answer: d12. Which statement (s) is (are) TRUE about stocks?I. when a firm issues new shares of stock, it adds to its debtII. a stockholder is promised a fixed dividend paymentIII. when the price of stocks increase, other things equal, households tend to increase their consumptionIV. the larger the expected future dividends, the smaller the current stock price, other things being equalV. when the price of a stock is strictly larger than its discounted value of expected future dividends, one can say that there is a “bubble” in the stock marketa I, III, VI, Vb II, III, Vc III, Vd III onlyAnswer: c13. Keynes suggested that _______ income households consume a ________ proportion of their income than ________ income householdsa) low; smaller; highb) low; larger; highc) high; larger; lowd) low; smaller; middleAnswer: b14. At any given level of the interest rate, expectations are likely to be ________ optimistic and planned investment is likely to be _______ when _____ is growing rapidly than when it is growing slowly or falling. a) less; higher; outputb) more; higher; outputc) less; lower; unplanned investmentd) more; lower; unplanned investmentAnswer: c15. The quantity theory of money allows monetarists to obtain a number of economic predictions by assuming a constanta) velocity of moneyb) nominal outputc) overall price leveld) stock of money3Name: Second Prelim ECON 102 – 25 April 2006Section Number:Answer: a16. The Lucas-supply function assumes thata) people and firms are generalists in production and specialists in consumptionb) price surprises are irrelevantc) most companies tend to produce a large scope of products using only few inputsd) people and firms are specialists in production but generalists in consumptionAnswer: d17. According to the supply-side model, a reduction in the tax ratea) could reduce the size of any budget deficitb) would have no effect on outputc) would have no effect on consumptiond) none of the aboveAnswer: a18. Keynes, the father of macro-economic policy stressed that:a) as the economy was operating at full capacity (in his time), expansionary fiscal policy would only have an inflatory effectb) the enormous importance of regulating the money supply in the economy at a rate which equals the rate of real growthc) the importance of expansionary fiscal and monetary policies during the 1930s aiming at shifting the AD curve outd) as firms use rational expectation models to determine their investment level, the government will in essence not be able to influence the economyAnswer: c19. Fill in the blanks: As long as the increase in _________prices