Econ final review

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

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%

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

52.70

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

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

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

High and rising debt slows economic growth.

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, IV

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

It is set higher than the federal funds rate.

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.

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

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.

A debt crisis occurs when:

a government cannot repay its loans.

The Federal Reserve was created after:

a series of bank runs and bankruptcies.

The government's debt is:

accumulation of all deficits

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

commercial bank

Aggregate expenditure is the sum of:

consumption, planned investment, government expenditure, and net exports

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?

discount window

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

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.

A bank run occurs when:

many bank depositors are trying to withdraw their funds from the bank

Contractionary monetary policy causes a:

movement along the same aggregate demand curve.

A rise in prices leads to a:

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

Fiscal policy is increased in its effectiveness through:

multiplier effect

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

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

the GDP deflator and the real GDP

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

Which of the following did the New Deal create?

unemployment benefits