macro Econ exam chapter 20,

T/F-Producer surplus is the difference between the highest price a consumer is willing to pay for a product and the revenues the supplier receives for it

False

The Taylor rule states that if real GDP rises 1 percent above potential GDP the federal funds rate should be raised, relative to the current inflation rate, by ______. a. 0.5% b. 1% c. 2% d. 4%

a. 0.5%

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. Consumer confidence in banks increased during the 1920s.

Which of the following scenarios shows a benefit of international trade? a. Edie was able to buy durian from Thailand at a fruit stand in New York City year round. b. The latest film in a superhero series was the top box office draw in the country last week. c. After the knitting factory closed, the building was converted into modern loft apartments. d. Preeti earned about a third of what her U.S. counterpart earned per hour for the same work.

a. Edie was able to buy durian from Thailand at a fruit stand in New York City year round.

Which of the following countries is among the top-five trading partners of the United States? a. England b. China c. Russia d. India

a. England

Why is the aggregate expenditure model important to economists? a. It helps explain fluctuations in the economy that can cause major disruptions. b. It illuminates methods of fostering long-term growth in the economy. c. It explains why the economy sometimes produces beyond the natural rate of real output. d. It aids economic planning by providing a measure of the level of inflation in the economy.

a. It helps explain fluctuations in the economy that can cause major disruptions

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. It is made up of 12 separate banks spread around the country.

Tyrone is reviewing his income and expenses for the two previous years. He notes that he made $7,200 more in the second year than in the first year and he spent $2,400 more in the second year than in the first year. What is his marginal propensity to consume? a. 7 percent b. 33 percent c. 67 percent d. 333 percent

b. 33 percent

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. $600,000

Household spending on goods and services amounts for what percentage of GDP? a. 30 b. 50 c. 70 d. 90

c. 70

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. Some banks may choose to keep some of their new deposits in their reserves

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. The money supply is regulated by the central bank.

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. The opportunity cost of holding money is high when interest rates are high.

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. They feared that borrowers would not pay back their loans.

How do most people respond when their disposable income increases? a. They spend all of the increase. b. They save all of the increase. c. They save some and spend some. d. They neither spend nor save.

c. They save some and spend some.

In economics, what term is used to refer to having a lower opportunity cost than other producers? a. effective exchange b. negative incentive c. comparative advantage d. comparable worth

c. comparative advantage

Which of the following goods or services are among top U.S. imports? a. aircraft b. education c. computers d. soybeans

c. computers

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. going bankrupt if the value of its assets falls

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. has been seen in many times and places

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. is deliberate

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. loans

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. quantitative easing

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. sell government bonds

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. yes, in the long run

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. $1,375,000

In a typical year, about what percentage of the world's output is traded in international markets? a. 85% b. 55% c. 35% d. 15%

d. 15%

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. Banks are more stable, so the money supply is more stable

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

d. M x V = P x Q

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. The interest rate for municipal bonds is 2 percent

Which of the following scenarios shows the likely effect of a 20% tariff on steel imports? a. The price of imported steel falls. b. The volume of steel imports rises. c. Sales of imported steel increase. d. The price of domestic steel rises.

d. The price of domestic steel rises.

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

d. demand deposits

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

d. four

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. in the short run, a well-designed monetary policy that increases the money supply

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. increasing full price levels

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

d. intermediaries

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. means of deferred payment

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. nominal GDP

The difference between the lowest price for which a supplier is willing to provide a good or service and the revenues a supplier actually receives for selling it is called ______. a. value balance b. equilibrium price c. supply curve d. producer surplus

d. producer surplus

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. the interest rate charged on reserves borrowed from the Fed's discount window

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. year

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

T/F-A production possibilities curve shows how many goods can be produced as the factors of production are increased over time

false

T/F-Comparative advantage means that a region or country can produce a good or service using the fewest resources

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

The true expenditure multiplier is usually larger than the calculated multiplier. 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 the long run, if the money supply rises by 20 percent, the price level rises by 20 percent. 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

Aggregate expenditures have historically been especially important to the economy in the short run. 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 aggregate expenditure increases, the aggregate demand curve shifts right. 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

Equilibrium in the aggregate expenditure model requires that aggregate expenditure equals income. 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

Marginal propensity to consume refers to how much you tend to spend on consumer goods and services out of your additional disposable income. True/False

true

Optimistic consumer expectations can cause changes to several of the autonomous components of aggregate expenditure. True/False

true

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

true

T/F-Countries can gain a wider variety of goods and services by trading their additional output for goods and services that others can produce at a lower opportunity cost

true

T/F-Most of the early international trading partners of the United States were in Europe

true

T/F-Transportation is among the leading U.S. export sectors

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 largest fiscal stimulus package ever was enacted under President Obama. 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

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

If the United States can produce computers efficiently, then what is the most likely reason it imports computers from other countries? a. Producing computers would take resources from the production of other goods in which the United States has a comparative advantage. b. Computers manufactured in other countries are of higher quality and are more durable than computers made in the United States. c. International law requires computer manufacturing to take place in the country of origin of the computer firms. d. Other countries have an absolute advantage over the United States when it comes to computer manufacturing.

a. Producing computers would take resources from the production of other goods in which the United States has a comparative advantage

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. a sharp rise in interest rates making loans issued in the 1970s unprofitable

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. buying government bonds

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. decreases; decrease

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

a. government spending

Which of the following did John Maynard Keynes believe held the key to understanding fluctuations in investment? a. how people spend their money b. how businesses make predictions c. how inflation affects the economy d. how governments enact policy

a. how people spend their money

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. less than

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. lower transaction costs and increased safety of transactions

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. major increase in the money supply

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. making most of the key decisions to influence changes in the money supply

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

a. money

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. money multiplier

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

a. nominal

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. Adding reserves to banks often has little effect on investment if the business forecast is unpromising.

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. It can be caused when a government needs to print large amount of money to pay huge debts.

Which of the following exemplifies a cause of increased international trade? a. The Canadian government imposed new tariffs on imported maple syrup, whiskey, and ketchup. b. Modern shipping containers eliminate the need to unload and reload goods at each point of transfer. c. Small Business Saturday encourages holiday shoppers to patronize local brick-and-mortar stores. d. Green economic initiatives stress the benefits of pursuing environmental and social sustainability.

b. Modern shipping containers eliminate the need to unload and reload goods at each point of transfer.

If the United States can produce cotton more efficiently than India, then why is cotton cloth imported to the United States from India? a. India has a harder-working labor force and better farming equipment. b. Trade is based on comparative advantage, not absolute advantage. c. Cotton production and trade are regulated by long-standing treaties. d. Indian suppliers have an absolute advantage over U.S. suppliers.

b. Trade is based on comparative advantage, not absolute advantage.

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. When banks loan money to borrowers, they make the economy more liquid.

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. appointed by the U.S. president for terms of 14 years

What do economists call the difference between the most an individual is willing to pay for an item and what the individual actually has to pay? a. price elasticity b. consumer surplus c. indifference curve d. payment terms

b. consumer surplus

Keynes believed that prices and wages were rigid or fixed until the economy reaches ______. a. equilibrium b. full employment c. recession d. expansion

b. full employment

Which of the following are services included among top U.S. exports? a. automobiles and aircraft b. insurance and banking c. sports and athletic training d. nursing and home care

b. insurance and banking

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. reserve requirement alterations

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. the American Recovery and Reinvestment Act

What differentiates a closed economy from other economies? a. trading with many partners b. very little international trade c. heavy importing with few exports d. an emphasis on goods over services

b. very little international trade