ECON Exam 3

If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to

$10,000.

If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?

Inventories will decline, and GDP and employment will rise.

Refer to Figure below. According to the figure above, at what point is aggregate expenditure greater than GDP?

J

The larger the MPS, the smaller the value of the multiplier.

True

Which of the following is not counted in M1?

credit card balances

An economic growth model

explains changes in real GDP per capita in the long run.

The purchase by an individual or firm of stock or bonds issued in another country is called

foreign portfolio investment.

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is aggregate expenditure?

$25 million

An economy without money would have no exchanges of goods and services.

False

False

False

Human capital refers to the percentage of the working-age population in the labor force.

False

The marginal propensity to consume measures the average amount of wealth that a consumer spends in a given period of time.

False

Globalization is defined as the process of countries becoming ________ open to foreign trade and ________ open to foreign investment.

more; more

The small group of East Asian countries that experienced high rates of growth in the 1980s and 1990s are referred to as

newly industrializing countries.

Knowledge capital is ________ in production and ________. As a result, firms ________ free ride.

nonrival; nonexcludable; can

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

open market operations, discount policy, and reserve requirements.

Decreases in the price level will

raise consumption because real wealth increases.

If the Federal Open Market Committee wants to decrease the money supply through open market operations it will

sell U.S. Treasury Securities.

Suppose that in 2016, real GDP grew in Estonia by 3% and the population increased by 5%. Therefore, in 2016, Estonia experienced

economic growth, but not an increase in living standards.

If the MPC is 0.5, then a $10 million increase in disposable income will increase consumption by

$5 million.

Refer to Table BELOW. Given the consumption schedule in the table above, the marginal propensity to save is

0.4.

A general formula for the multiplier is

1/MPS

During which of the following periods was growth in GDP per capita the strongest?

1900-2000 A.D.

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%.

Refer to Figure below. Technological change is illustrated in the per-worker production function in the figure above by a movement from

B to C.

12)The economic growth model predicts that

GDP per capita of poor countries will grow more rapidly than in rich countries.

If planned aggregate expenditure is less than total production,

GDP will decrease.

In a small European country, it is estimated that changing the level of capital from $8 million to $10 million will increase real GDP from $2 million to $3 million. What level of GDP would you expect the economy to be able to reach if spending on capital continued to rise to $12 million, assuming no technological change and no change in the hours of work?

GDP would increase further, but by less than $1 million.

Which of the following is one of the most important benefits of money in an economy?

Money makes exchange easier, leading to more specialization and higher productivity.

If planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories.

True

If the rate of growth in real GDP exceeds the rate of growth in the money supply, the quantity theory of money predicts a price deflation.

True

Macroeconomic equilibrium can occur at any point on the 45-degree line.

True

One reason why many low-income countries experience low rates of growth is because of low rates of saving and investment in those countries.

True

An unplanned increase in inventories results from

actual investment that is greater than planned investment.

Which of the following is not one of the three sources of technological change?

additional amounts of existing capital

Which of the following advances contributed to the "new economy" of the mid-1990s?

all of the above

Why do some firms choose not to file for a patent and instead try to keep the results of their research a trade secret?

because firms must disclose information about the product or process being patented in a patent application

A good can serve as money only if

citizens accept the good as a means of payment for transactions and debts.

Which of the following is not a function of the Federal Reserve System, or the "Fed"?

insuring deposits in the banking system

Which of the following is not one of the four main categories of spending identified by John Maynard Keynes?

transfer payments

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.

A commercial bank like Comerica creates money by

making loans.

The ________ the reserve ratio, the ________ the money multiplier.

smaller; larger

A farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money?

store of value

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

the level of aggregate expenditure.

The more excess reserves banks choose to keep,

the smaller the deposit multiplier.

U.S. net export spending falls when

the value of the U.S. dollar decreases relative to other currencies.

The quantity theory of money was derived from the quantity equation by asserting that

the velocity of money was fixed.

At macroeconomic equilibrium,

total spending equals total production.