Macro 16

If Q represents real GDP and P is the price level, then P × Q equals ______. a. real NI b. real NNP c. nominal NNP d. nominal GDP

D

The largest fiscal stimulus package ever was enacted under President Obama. True/False

True

Based on the graph showing the Phillips curve, higher inflation is paired with ______. a. lower unemployment b. higher unemployment c. zero unemployment d. increasing unemployment

A

In this graph, at point e1, price level is ______. a. inflationary b. deflationary c. stable d. not shown

A

Based on the table, the multiplier in this case is ______. a. 2/3 b. 3 c. 10 billion d. 30 billion

B

Members of the Federal Reserve Board of Governors are ______. a. elected by the U.S. public for lifetime terms b. appointed by the U.S. president for terms of 14 years c. appointed and removed according to the votes of Fed member banks d. chosen at random from the heads of the 12 regional Fed banks, every four years

B

On the graph showing the Laffer curve, tax revenue is optimized at point ______. a. A b. C c. D d. E

B

The $840 billion package of both spending increases and tax cuts passed in 2009 was known as ______. a. the Affordable Care Act b. the American Recovery and Reinvestment Act c. the Kennedy Tax Cuts d. the Reagan Growth Initiative

B

Which of the following statements accurately restates an aspect of the liquidity trap? a. Adding reserves to banks often has a quick positive effect on borrowing. b. Adding reserves to banks often has little effect on investment if the business forecast is unpromising. c. Adding reserves to banks rarely has a positive effect even when the business forecast is promising. d. Adding reserves to banks at times has an effect on borrowing, but rarely on investment.

B

Which statement about loans is true? a. Banks use their secondary reserves to make loans. b. When banks loan money to borrowers, they make the economy more liquid. c. By creating loans, banks decrease demand deposits. d. When a loan is made, the borrower experiences an increase in wealth.

B

Which tool results in an immediate and major impact on the money supply, but is rarely used by the Fed because it affects the money supply in such a significant way? a. open market operations b. reserve requirement alterations c. reserve interest rate changes d. discount rate changes

B

On the graph showing the Laffer curve, if an economy is using a tax rate at point D, it could increase revenues by moving the tax rate to point ______. a. A b. B c. C d. E

C

The country is experiencing rapid inflation. What could the Fed do reduce the money supply and slow inflation? a. buy government bonds b. lower the reserve ratio c. sell government bonds d. lower the discount rate

C

Which of the following is an accurate comparison between graph 1 and graph 2? a. Changes in demand cause less of a shift in equilibrium points in graph 1 than in graph 2. b. Changes in demand cause more of a shift in equilibrium points in graph 1 than in graph 2. c. Changes in demand will increase RGDP more in graph 1 and price more in graph 2. d. Changes in demand will increase price more in graph 1 and RGDP more in graph 2.

C

Which of the following is an accurate statement about the supply of money? a. The money supply is almost completely elastic. b. Banks will try to maximize profits even if their money supply is below the desired level. c. The money supply is regulated by the central bank. d. The money supply curve is horizontal, other things being equal.

C

What is one of the benefits of FDIC insurance? a. Banks are more likely to manage their money carefully. b. It provides banks with an attractive place to invest their reserves. c. It drives down the interest rate. d. Banks are more stable, so the money supply is more stable.

D

Adaptive expectations are an individual's belief that the recent information on inflation and unemployment are poor indicators of the future. True/False

False

Fiat money is money that has been established by custom or tradition. True/False

False

Since the 1930s, economic stabilization policies have focused primarily on the supply side of the economy. True/False

False

Tax cuts and increased government purchases shift the aggregate demand curve in opposite directions. True/False

False

The Phillips curve demonstrates a positive relationship between inflation and unemployment rates. True/False

False

When interest rates on short-term financial assets such as CDs or U.S. Treasury bills are low, the opportunity cost of holding money is high. True/False

False

In this graph, at point e1, output level is ______. a. above the potential b. below the potential c. at the potential d. not shown

A

Based on the table, the increase in government purchases changes aggregate demand ______. a. less than the combined changes in consumption purchases b. more than the combined changes in consumption purchases c. the same amount as the combined changes in consumption purchases d. the same amount as the first individual round of consumption purchases

A

Based on the table, the largest change in aggregate demand takes place during the ______. a. change in government purchases b. first change in consumption purchases c. second change in consumption purchases d. final change in consumption purchases

A

Based on this graph, which of the following are the key results of an expansionary monetary policy? a. Price level increases; real gross domestic product increases; aggregate demand increases. b. Price level decreases; real gross domestic product increases; aggregate demand increases. c. Price level decreases; real gross domestic product decreases; aggregate demand increases. d. Price level increases; real gross domestic product decreases; aggregate demand decreases.

A

During times of financial prosperity, the number of people on public assistance ______, causing aggregate demand to ______. a. decreases; decrease b. increases; increase c. decreases; increase d. increases; decrease

A

If the Fed lowers the reserve requirement from 15 percent to 13 percent, the result will be a ______. a. major increase in the money supply b. major decrease in the money supply c. minor increase in the money supply d. minor decrease in the money supply

A

In some financial situations, people have a tendency to hold on to their money. Which of the following are the accurate coordinates for this type of situation? a. i2 and M1 b. i1 and M1 c. i1 and M2 d. i2 and M2

A

In the 1990s, Japan tried to fight a recession by increasing ______. a. government spending b. subsidies c. taxes d. interest rates

A

In the above graphs, which of the following remains constant as the money supply increases? a. price level b. interest rate c. aggregate demand d. real gross domestic product

A

In the situation shown on this graph, what will be the result of the fiscal policy on employment? a. The unemployment rate will fall. b. The unemployment rate will rise. c. The unemployment rate will remain unchanged. d. The unemployment rate will move unpredictably.

A

In this graph, what causes point A to move to point B? a. a decrease in interest rates in the short run b. an increase in interest rates in the short run c. a decrease in interest rates in the long run d. an increase in interest rates in the long run

A

The amount of money that can potentially be generated from each dollar of reserves is measured by the ______. a. money multiplier b. discount rate c. interest rate d. required reserve ratio

A

The crowding-out effect is small when firms are ______. a. pessimistic about the future b. optimistic about the future c. considering sizable future investment d. operating at full-capacity

A

The money market is where money demand and money supply determine the equilibrium ______ interest rate. a. nominal b. real c. gross d. net

A

The multiplier effect of a tax cut is ______ the multiplier effect of an equal amount of government spending. a. less than b. the same as c. a little more than d. much more than

A

The savings and loan crisis during the 1980s was due in large part to ______. a. a sharp rise in interest rates making loans issued in the 1970s unprofitable b. consumer fears about bank failures and a resulting cascade of bank runs c. a lack of effective government-supported insurance on savings and loan deposits d. increased government regulation of savings and loans institutions

A

What are two traits that make demand deposits more attractive than physical currency for large transactions? a. lower transaction costs and increased safety of transactions b. higher interest rates and lower accounting costs c. greater monetary value and lower risks d. increased purchasing power and lower bartering costs

A

What is the Federal Open Market Committee responsible for? a. making most of the key decisions to influence changes in the money supply b. providing loans and banking services to the federal government c. monitoring the transactions made in the U.S. stock market d. choosing the members of the Federal Reserve Board of Governors

A

Which of the following actions would help the Fed increase the supply of money in the economy? a. buying government bonds b. raising the reserve ratio c. selling government bonds d. raising the discount rate

A

Which of the following can most easily be converted into goods and services? a. money b. CDs c. stocks d. bonds

A

Which statement about the structure of the Federal Reserve System is true? a. It is made up of 12 separate banks spread around the country. b. It is a single bank located in New York. c. It is made up of 12 linked banks located in the eastern states. d. It is a single bank located in Washington D.C.

A

Which statement is true about the banking industry in the 1920s? a. Consumer confidence in banks increased during the 1920s. b. Bank failures caused by depositors withdrawing their money in large numbers were common. c. Bank executives were generally corrupt and were the primary cause of bank troubles. d. The industry was severely depressed during most of the decade.

A

Based on the graph showing the crowding-out effect, higher interest rates cause a shift from ______. a. AD1 to AD2 b. AD2 to AD1 c. AD2 to AD3 d. AD1 to AD3

C

Banks generally keep most of their assets in the form of ______. a. cash assets b. reserves held at the Fed c. loans d. secondary reserves

C

Based on the table showing a summary of fiscal tools, contractionary policy ______. a. is used to increase aggregate demand b. is used to fight inflation c. uses tax decreases d. increases government purchases

B

How did an increase in consumer confidence change the final equilibrium point of the expansionary policy as shown in this graph? a. Instead of reaching the target of E3 and at RGDP3, the final result is E4 at RGDPNR. b. Instead of reaching the target of E2 and at RGDPNR, the final result is E4 at RGDPNR. c. Instead of reaching the target of E2 and at RGDPNR, the final result is E3 at RGDP3. d. Instead of reaching the target of E3 and at RGDP3, the final result is E1 at RGDP1.

B

In the situation shown by this graph, what will be the most likely result of the fiscal policy on employment? a. The unemployment rate will fall. b. The unemployment rate will rise. c. The unemployment rate will remain unchanged. d. The unemployment rate will move unpredictably.

B

In this graph, at point e1, output level is ______. a. above the potential b. below the potential c. at the potential d. not shown

B

In this graph, one of the end results of the expansionary policy is ______. a. a permanent shift in output from RGDPNR to RGDP2 b. a shift of price level to PL3 c. a shift in aggregate demand from AD2 to AD1 d. a shift in equilibrium from E1 to e2

B

Which of the following is an accurate statement about hyperinflation? a. It usually happens when a country experiences steady economic growth for many years. b. It can be caused when a government needs to print large amount of money to pay huge debts. c. It often occurs when a government sharply reduces the money supply to curb inflation. d. It happens less often during wars or periods of political unrest.

B

A highly leveraged bank risks ______. a. missing out on massive profits b. being unable to borrow from the Fed c. going bankrupt if the value of its assets falls d. losing up to the total amount of its initial investment

C

A shift from i1 to i2 in graph 1 leads directly to which of the following in graph 2? a. a shift from PL2 to PL1 b. a shift from MD2 to MD1 c. a shift from RGDP1 to RGDP2 d. a shift from RGDP2 to RGDP1

C

An inverse relationship between unemployment rates and prices ______. a. has only recently begun to occur b. is an unusual feature of the U.S. economy c. has been seen in many times and places d. is primarily found in developing nations

C

Based on this graph, which of the following are the key components of a contractionary monetary policy? a. Price level increases; real gross domestic product increases; aggregate demand increases. b. Price level decreases; real gross domestic product increases; aggregate demand increases. c. Price level decreases; real gross domestic product decreases; aggregate demand decreases. d. Price level increases; real gross domestic product decreases; aggregate demand decreases.

C

Discretionary fiscal policy differs from automatic stabilizers because discretionary policy ______. a. occurs at the state level b. is set by the Federal Reserve c. is deliberate d. cannot be changed

C

During the great recession the Fed used many non-traditional tools to manage the money supply, including ______. a. merging member banks b. eliminating interest payments on reserves held at the Fed c. quantitative easing d. lowering reserve requirements

C

In the graph showing an increase in aggregate demand, if aggregate demand moves from point A to point B, ______. a. aggregate demand will weaken b. price levels remain unchanged c. RGDP increases by $1 trillion d. unemployment increases by 3 percent

C

In this graph, more government purchases and/or lower taxes will move the equilibrium ______. a. off the LRAS curve b. off the SRAS curve c. from point e1 to point E2 d. from point E2 to point e1

C

In this graph, which of the following is the least sustainable? a. PL3 b. PL1 c. E2 d. E1

C

Is fiscal policy able to influence economic growth? a. yes, in the short run b. no, because it affects only aggregate demand c. yes, in the long run d. no, because it affects only aggregate supply

C

Oksana deposits $90,000 at Flynn Bank. Flynn Bank has a required reserve ratio of 15 percent. How much money could Oksana's deposit potentially create? a. $76,500 b. $90,000 c. $600,000 d. $13,500

C

Which of the following statements about this graph is accurate? a. MD2 has a lower RGDP than MD3 b. MD1 has a higher RGDP than MD2 c. MD3 has a lower price level than MD1. d. MD1 has a higher price level than MD2.

C

Why did so many banks sit on their reserves during the financial crisis of 2008-2009? a. They expected the United States to declare war soon. b. They were waiting for the stock market to take a plunge. c. They feared that borrowers would not pay back their loans. d. They opposed the policies of the presidential administration.

C

Why does the money multiplier measure potential money creation rather than guaranteed money creation? a. Borrowers may spend all the money they acquire through a loan. b. The money is not real until it is deposited or spent. c. Some banks may choose to keep some of their new deposits in their reserves. d. Borrowers may deposit their loan money into checkable rather than demand deposits.

C

Why is the demand curve for money downward sloping? a. The opportunity cost of holding money is low when interest rates are steady. b. The opportunity cost of holding money is low when interest rates are high. c. The opportunity cost of holding money is high when interest rates are high. d. The opportunity cost of holding money is high when interest rates are steady.

C

Based on the table showing a summary of fiscal policy tools, one tool for dealing with a negative RGDP growth rate is ______. a. decreasing government transfer payments b. increasing taxes c. decreasing government purchases d. increasing government purchases

D

Based on these graphs, the price level remains unchanged if the tax cut has ______ on both SRAS and AD. a. no effect b. a small effect c. a moderate effect d. a large effect

D

Based on this graph, during the 1940s and the Recession of 2008-2009, the national debt ______. a. remained below 10 percent of GDP b. was temporarily paid off c. was at the same level d. exceeded 100 percent of GDP

D

How many important functions does money have in the economy? a. eight b. one c. two d. four

D

If the velocity of money is 5, then each dollar must have exchanged hands on average 5 times per ______. a. day b. week c. month d. year

D

Mika takes out a personal loan from her bank so that she can replace her furnace. From that point forward, Mika writes her bank a check for $150 every month until the loan has been satisfied. Mika's payments demonstrate how money acts as a ______. a. unit of account b. store of value c. medium of exchange d. means of deferred payment

D

Sreya deposits $110,000 into Jury Bank, which has a required reserve ratio of 8 percent. Sreya's deposit could potentially generate ______ in new money. a. $809,600 b. $1,265,000 c. $880,000 d. $1,375,000

D

Suppose right now the inflation rate is 3 percent and the unemployment rate is 4 percent, but 10 months from now unemployment has dropped to 1 percent. Based on the Phillips curve, what else can you assume about the economy 10 months from now? a. Inflation will also be 1 percent. b. Real wages will be 1 percent higher. c. Inflation will still be very near 3 percent. d. Inflation will be greater than 3 percent.

D

What causes AD1 to shift to AD2 in graph 2? a. a stable PL1 in graph 2 b. a shift from MS2 to MS1 in graph 1 c. a shift from RGDP1 to RGDP2 in graph 2 d. a shift from i1 to i2 in graph 1

D

What is the discount rate? a. the amount of cash banks must keep on hand at any given time b. the discount that the fed provides per $100,000 of borrowed money c. the interest rate the Fed pays on reserves stored in the federal funds market d. the interest rate charged on reserves borrowed from the Fed's discount window

D

When creating money, banks are acting as ______. a. depositors b. borrowers c. suppliers d. intermediaries

D

Which of the following examples indicates an economic situation where the highest amount of money is demanded? a. The interest rate for CDs is 6 percent. b. The interest rate for saving accounts is 4 percent. c. The interest rate for U.S. Treasury bills is 8 percent. d. The interest rate for municipal bonds is 2 percent.

D

Which of the following examples would best stop a recession? a. in the long run, a well-designed monetary policy that decreases the money supply b. in the short run, a well-designed monetary policy that decreases the money supply c. in the long run, a well-designed monetary policy that increases the money supply d. in the short run, a well-designed monetary policy that increases the money supply

D

Which of the following has the longest lag time for the Federal Reserve? a. reducing production output b. increasing employment c. reducing government bonds d. increasing full price levels

D

Which of the following is part of the M1 definition of money? a. stocks b. savings deposits c. time deposits d. demand deposits

D

Which of the following is the equation of exchange? a. M - V = P - Q b. M + V = P - Q c. M ÷ V = P Q d. M V = P Q

D

With the velocity of money, V represents the average number of times that each dollar is used in purchasing final goods or services in a one-year period. True/False

True

A bank that loans $1,000 to a borrower, who then deposits the money in a bank account, has created $1,000 in new money. True/False

True

A major criticism of quantitative easing is that it could eventually lead to inflation. True/False

True

As aggregate demand in an economy increases, it moves up and to the left on its Phillips curve. True/False

True

As long as it is generally accepted in exchange for services and goods, anything can be considered money. True/False

True

By raising the reserve requirement, the Fed can reduce the money supply. True/False

True

Economist Arthur Laffer invented a graphic demonstrating the effect of tax rates on government revenue. True/False

True

If the FOMC wants to make a quick, quiet, and inexpensive change to influence the money supply, it is most likely going to use open market operations. True/False

True

In the long run, if the money supply rises by 20 percent, the price level rises by 20 percent. True/False

True

Savings deposits are considered part of the M2 definition of money, but not the M1 definition. True/False

True

The Federal Reserve's policies with respect to the money supply have a direct effect on short-run nominal interest rates. True/False

True

The belief that workers and consumers incorporate the likely consequences of government policy changes into their expectations by quickly adjusting wages and prices is known as rational expectations theory. True/False

True

The largest budget deficits are usually created during wars. True/False

True

The multiplier effect causes the ultimate increase in total purchases to be greater than the initial increase. True/False

True

The natural rate hypothesis states that the economy will self-correct to the natural rate of unemployment. True/False

True

The quantity theory of money and prices is the hypothesis that changes in the money supply lead to equal proportional changes in the price level. True/False

True

The use of payment contracts that automatically adjust for changes in inflation is known as indexing. True/False

True