ECON EXAM 3

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $665, approximately how much will you get after these deductions?

$604.49

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $665. How much will your work cost your employer?

$725.52

In your current job, you earn $41,000. You take the standard deduction of $12,200. You have an offer of a new job working for a different employer. Your salary would go up by $6,500. How much extra will you owe in federal income taxes if you take the new job?

$780

On which of the following is there a tax incentive in the United States?(i) health insurance purchased through employers(ii) employer contributions for life insurance(iii) rental value on owner-occupied housing(iv) your mortgage

(i), (iii), and (iv)

The higher the GDP deflator in an economy, the:(i) higher the purchasing power of the currency.(ii) lower the real wealth in the economy.(iii) higher the real wealth in an economy.(iv) more expensive the country's exports.

(ii) and (iv)

You are sitting at your desk in your new job as the Chair of the Federal Reserve Bank of the United States. The interest rate where potential GDP meets real GDP is 2%, the inflation rate is 1%, and the output gap is -1%. What is the appropriate new nominal federal funds rate that you should set for the economy?

1.5%

What was the Fed's inflation target in 2019?

2%

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is -0.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

2%

When government expenditure rises by $180 million and the initial increase in government expenditure was $60 million, then the multiplier is:

3.

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer?

927.35

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand?

All prices adjust, and the economy returns to long-run potential.

Which of the following will fall when the economy is expanding?

Applications for unemployment benefits

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when corporate taxes rise in the economy?

Both prices and GDP decrease.

The Federal Reserve's lender-of-last-resort function has been curtailed over time by the:

Dodd-Frank Act.

Refer to the data dashboard shown. Which indicator tells you how fast wages and benefits are rising?

Employment cost index

If an economy has a positive output gap of 1.5%, this means:

GDP is 1.5% above potential GDP.

Which of the following is a reason to worry about government debt?

High and rising debt slows economic growth.

When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure?

Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure.

Which of the following will probably rise when the economy is in a recession?

Initial unemployment claims

Why is the discount rate the upper bound for the federal funds rate?

It is set higher than the federal funds rate.

Which of the following correctly describes the business cycle?

It is the fluctuations of GDP around the potential output.

Why don't most tax expenditures help much if your federal tax bill is zero?

Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper?

Prices decrease, and GDP increases.

Refer to the data dashboard shown. Which indicator is a cross-check on GDP?

Real GDI

Which of the following is a broad indicator?

Real gross domestic income

Which economic indicator tells you about the future expected profits of businesses?

S&P 500

What is the floor framework that the Federal Reserve uses to influence the federal funds rate?

The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go

You are the manager of a local bank. Due to unstable financial conditions, savers are worried that your bank may fail. When they show up in large numbers to withdraw their savings, you find that you do not have enough cash to meet the obligations. Where can you turn for a loan if no other bank will lend to you?

The discount window

Which economic indicator tells you how fast wages and benefits are rising?

The employment cost index

When prices rise in the United States, what is the effect on consumption and aggregate expenditure?

The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.

Which of the following is a narrow indicator?

The stock price for JPMorgan Chase & Co.

You have saved $747. Where should you go if you want to open a checking account?

a commercial bank

A debt crisis occurs when:

a government cannot repay its loans.

Which of the following changes will lead to a decrease in the price level but an increase in the quantity of output in an economy?

a rise in aggregate supply

The Federal Reserve was created after:

a series of bank runs and bankruptcies.

Monetary policy is defined as the:

adjustment of interest rates to influence economic conditions.

Which of the following services are provided by local government?

bus services

Aggregate expenditure is the sum of:

consumption, planned investment, government expenditure, and net exports.

The Great Moderation refers to the:

decreased volatility of the U.S. economy.

The Affordable Care Act is an example of:

discretionary spending.

In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes.

expansionary; raises; lowers

A budget deficit occurs when:

government spending exceeds government revenue.

Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand.

increases; boosts; raises

Contractionary monetary policy causes a:

left shift of the aggregate demand curve.

If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to:

lower nominal wages by 1%.

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be:

lower than the neutral interest rate.

If the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

lower; up

A bank run occurs when:

many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.

With a progressive tax, those with _____ income tend to pay a _____.

more; higher share of their income in taxes

A rise in prices leads to a:

movement up and to the left, along the same aggregate demand curve.

The four stages of the business cycle are:

peak, recession, trough, and expansion.

Forward guidance occurs when the Federal Reserve:

provides information about the future course of monetary policy in order to influence expectations about future interest rates.

If the output gap is positive, the Federal Reserve will _____ the real interest rate to _____.

raise; cool inflationary pressures

If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

raise; down

If the output gap is positive, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy.

raise; upward; decrease

Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand.

raises; lowers; decreases; lowers

If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then:

real wages have fallen by 2.5%.

Ceteris paribus, a decrease in imports leads to a:

right shift of the aggregate demand curve.

Suppose that an economy is in a recession. You would expect to see the unemployment rate:

rise above the equilibrium unemployment rate.

Based on Okun's rule of thumb, if you forecast that the output gap will decline from 0% to -3%, the unemployment rate will:

rise by 1.5%.

According to Okun's rule of thumb, for every 1% fall in the actual output below potential output, the unemployment rate:

rises by 0.5%.

What kind of data adjustment removes the effect of sales spikes due to the holiday season?

seasonally adjusted data

When the government increases spending, a multiplier effect will:

shift the AD curve further to the right than the effect of the spending.

The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of:

social insurance.

In the AD-AS framework, price and quantity are represented by _____, respectively.

the GDP deflator and the real GDP

The government's debt is:

the accumulation of all the deficits.

Suppose a high-income person, a middle-income person, and a low-income person all purchase identical houses that are financed by similar mortgages. Who spends the most on tax-preferred goods?

the high-income person

Suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. Who gets the largest tax benefit?

the high-income person

What is a reserve requirement?

the minimum amount of reserves that each bank must hold

Fiscal policy is increased in its effectiveness through:

the multiplier effect.

An economy's potential output level is:

the output that is possible when all resources are fully employed.

An example of a leading indicator is:

the stock market.

Fiscal policy works best when it is:

timely, targeted, and temporary.

Which of the following did the New Deal create?

unemployment benefits