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ECON204 Quiz 1

Suppose the economy is currently operating on both the IS curve and the LM curve. Which of the following is true for this economy?
The quantity supplied of bonds equals the quantity demanded for bonds.
The money supply equals money demand.
Production equals demand.
Financial markets are in equilibrium.
All of the above.
Which of the following will occur when the central bank pursues contractionary monetary policy?
A leftward shift in the money demand curve and a leftward shift in the money supply curve.
No shift in the money demand curve and a leftward shift in the money supply curve.
No shift in the money demand curve and a rightward shift in the money supply curve.
A leftward shift in the money demand curve and a rightward shift in the money supply curve.
A rightward shift in the money demand curve and a leftward shift in the money supply curve.
A decrease in the parameter, c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following?
An increase in the monetary base.
A decrease in monetary base.
An increase in central bank money.
An increase in the money multiplier.
A decrease in the money multiplier.
For a closed economy, which of the following conditions must be satisfied for equilibrium to be maintained?
Y = Z.
S = I.
X = Z.
G = T.
X = IM.
A RBA sale of securities will most likely have which of the following effects?
A rightward shift in the IS curve.
A leftward shift in the IS curve.
An upward shift in the LM curve.
A downward shift in the LM curve.
A downward shift in the IS curve and an upward shift in the LM curve.
Assume that individuals do not hold currency (i.e., c = 0). The money multiplier is equal to:
1- c.
1/ c.
1/(1- c).
1/ θ.
1/(1- θ)
Which of the following is not included as a component of the M1 definition of money?
Bonds.
Coins and bills held by the non-bank public.
Current account deposits
Coins and bills held by banks.
None of the above.
Suppose there is a decrease in consumer confidence and the central bank controls the money supply. Which of the following represents the complete list of variables that must decrease in response to this consumer pessimism?
Consumption, investment and output.
Consumption.
Consumption and investment.
Consumption, output and the interest rate.
Consumption and output.
Which of the following events will most likely cause an increase in the money supply?
A shift in public preferences away from deposits toward currency.
An increase in the ratio of reserves to deposits.
A central bank sale of bonds.
A decrease in the ratio of reserves to deposits.
None of the above.
The equilibrium condition in the goods market holds that:
Production equals demand.
Consumption equals income.
Production equals income.
Consumption equals saving.
Government spending equals taxes minus transfers.
In the goods market model of Chapter 3 in the textbook, which of the following variables is not endogenous?
Saving ( S).
Investment ( I).
Disposable income ( YD).
Consumption ( C).
Aggregate demand ( Z).
Which of the following describes the US policy mix during the 2001 recession?
Expansionary fiscal policy and contractionary monetary policy.
Contractionary fiscal policy and expansionary monetary policy.
Contractionary fiscal policy and contractionary monetary policy.
Expansionary fiscal and contractionary tax policy.
Expansionary fiscal policy and expansionary monetary policy.
Consider the consumption function, C = c 0 + c 1 YD, we assume that c 1 is
Between zero and one.
Negative.
Different depending on the levels of disposable income.
Larger than c 0.
Equal to one.
Suppose the central bank decides to conduct an open market sale of bonds. Which of the following will occur as a result of this monetary policy action?
The LM curve shifts down.
The IS curve shifts rightward as the interest rate increases.
The IS curve shifts leftward as the interest rate decreases.
The LM curve shifts up.
The LM curve shifts up and the IS curve shifts leftward.
An increase in the parameter, c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following?
A decrease in the monetary base.
An increase in reserves.
An increase in the money multiplier.
A decrease in the money multiplier.
An increase in the monetary base.
Inventory investment is the difference between which two variables?
Production and demand.
Production and sales.
Production and income.
Export and import.
Demand and sales.
An increase in income will tend to cause which of the following?
A decrease in monetary base.
A decrease in the interest rate.
An increase in the monetary base.
An increase in the interest rate.
An increase in central bank money.
An increase in the reserve ratio, θ, will cause:
A decrease in central bank money.
A decrease in the money multiplier.
A decrease in the monetary base.
An increase in the money multiplier.
An increase in the monetary base.
In 2008, the Australian government insured each bank account up to what amount for three years?
$150,000.
$10,000.
$60,000.
$100,000.
Accounts were fully insured, but at a cost above $1m
Suppose there is a simultaneous central bank purchase of bonds and increase in taxes. We know with certainty that this combination of policies must cause:
A decrease in M.
A decrease in I.
An increase in I.
An increase in Y.
A decrease in Y.
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