MCQ for UOL Introduction to Economics New Exam Format!

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1)   Equilibrium in the goods market requires that:

A)   consumption equals income.

B)   production equals demand.

C)   government spending equals taxes minus transfers.

D)   production equals income.

E)   consumption equals saving.

2)   Which of the following generally occurs when a central bank pursues expansionary monetary policy?

A)   the central bank sells bonds and the interest rate increases

B)   the central bank sells bonds and the interest rate decreases

C)   the central bank purchases bonds and the interest rate increases

D)   the central bank purchases bonds and the interest rate decreases

3)   Which of the following will cause a shift in the LM curve?

A)   an increase in output

B)   a reduction in taxes

C)   an open market purchase of bonds

D)   an increase in consumer confidence

E)   all of the above

4)   Based on our understanding of the ISLM model that takes into account dynamics, we know that a reduction in the money supply will cause:

A)   an immediate drop in Y and immediate increase in i.

B)   a gradual increase in i and gradual reduction in Y.

C)   an immediate increase in i and no initial change in Y.

D)   none of the above

5)   Which of the following events will NOT cause an increase in the aggregate price level?

A)   an increase in Pe

B)   a reduction in output

C)   an increase in the markup

D)   an increase in unemployment benefits

E)   none of the abovea

6)   Assume a country is closed. Given this information, which of the following must occur?

A)   Demand for domestic goods will be greater than the domestic demand for goods.

B)   S = I

C)   A budget surplus exists.

D)   S + T = I + G

E)   Demand for domestic goods will be less than the domestic demand for goods.

7) The size of the simple 4 sector (with a lump-sum taxation system) expenditure multiplier depends, in part, on the

(a)  Level of total consumption, Co
(b)  Marginal propensity to import, or MPI.
(c)  Level of autonomous expenditure .
(d)  Average propensity to save, or APS

8) At the equilibrium level of output, or Ye, if exports are greater than imports, it must be the case that

(a)  Leakages equals injections.
(b)  S+T=I+G
(c)  Planned aggregate expenditure exceeds real output.
(d)  I = S + T- G – X+M

9)If interest rates are falling, then

a) Bond holders will suffer capital losses.
b) The asset demand for money will be falling.
c) The asset demand for money will be rising.
d) The transactions demand for money will be falling

10) The IS curve is negatively sloped because

(a) A higher interest rate increases expenditure.
(b) A lower level of output decreases leakages.
(c) It is an equilibrium locus/line of i and Y combinations that clear the money market
(d) I is positively related to S.


11) When the marginal propensity to invest declines, the

a) Marginal propensity to consume increases but there is no effect on the IS curve.
b) Multiplier becomes larger and the IS curve becomes steeper.
c) Multiplier is unaffected and the IS curve remains the same.
d) Multiplier becomes larger and the IS curve becomes flatter.


12) The slope of the LM schedule does not depend upon:

a) The interest responsiveness of the investment demand curve.
b) The proportion of money held for transactions purposes or k.
c) The interest responsiveness of the asset demand for money.
d) Both b and c.


13) The slope of the LM schedule will become flatter when

a) The value of k (or the income elasticity of transactions demand for money) decreases.
b) The value of k (or the income elasticity of transactions demand for money) increases.
c) Cash and bonds become relatively closer substitutes from an asset demand for money 
viewpoint or perspective.
d) The interest elasticity of the Investment Demand Curve becomes steeper.



14) The slope of the LM schedule will become flatter when

a) The interest responsiveness of asset demand decreases.
b) The interest responsiveness of asset demand increases.
c) Cash and bonds become relatively closer substitutes from an asset demand for money 
viewpoint or perspective.
d) The interest elasticity of the Investment Demand Curve becomes steeper.


15) If the economy is operating with a perfectly vertical LM curve, then:

a) The proportion of money held for transactions purposes or k is zero
b) The asset demand for money must be zero.
c) Cash and bonds must be close substitutes.
d) k or the income elasticity of transactions demand for money must be very low.