Macro Economics Study Guide
The required reserve ratio for Julies bank is 10%. If Julie deposits $5000 cash into her checking account, what amount of money could the bank create when it lends out its excess reserves?
$4500
Which of the following statements accurately differentiates a budget deficit and national debt?
A budget deficit occurs in one year when the government spends more that it receives; national debt is an accumulation of budget deficits over time.
Julia is an expert with lab experiments in her chemistry class. She is the fastest at reading and comprehending the experiment, setting up the equipment, conducting the experiment, writing notes, making observations, and in cleaning up an experiment. Julia has a(n) ______ in chemistry experiments.
Absolute Advantage
From a banks perspective, demand deposits are considered a(n)_____.
Asset
Fiscal Policy includes:
Changes in taxes Changes in government expenditure
In an attempt to boost the economy, the government's expansionary fiscal policy would include which of the following ?
Cutting tax rates
Which of the following is an example of an automatic fiscal policy stabilizer?
Decrease in tax revenues as real GDP decreases.
The interest rate charged by the central bank when it makes loans to commercial banks is called the
Discount rate
When the interest rate in an economy decreases, it is likely the result of either a/an ____ or a/an ____.
Expansionary practice; open market purchase of securities by the Fed.
During a recession, automatic stabilizers include(s):
Income tax revenues Unemployment benefits
A decrease in aggregate demand as a consequence of government decisions to alter its levels of expenditure and revenues involves which of the following ?
Increases in tax rates and collections and decreases in spending.
When complimentary trading firms have specialized workers and processes in a particular product, and they engage in intra-industry trade, it creates benefits from working together by creating_____.
Innovation and learning
If a large firm plans to become more competitive in its market space and has already decreased its production costs using economies of sale, what would happen in relation to its intra-industry trade?
It would work to expand its competitive products into other countries and offer variety to customers.
A decrease in government expenditure shifts the AD curve to the ___ and a decrease in taxes shifts the AD curve to the ___.
Left: Right
Banks are financial intermediaries because they
Link savers who deposit money and borrowers who seek loans.
Which of these answers is excluded from being an example of trade barriers?
Lower prices
An expansionary or loose monetary policy...
Lowers interest rates.
Which of the following is a major component of U.S. government spending?
Medicare and Social Security expenditures
The money multiplier defines the amount of
Money that the banking system can create.
An example of a financial market is the ____.
NASDAQ Stock Market
When banks receive new deposits, they can make new loans and thus create money
Only up to the amount of their excess reserves.
What tool might the fed use to boost the economy during a recession?
Open market operations
Governments may use protectionist policies to_____.
Protect domestic jobs
The metal works company receives subsidies from its government to produce its goods. When the Metal Works company generates surplus and begins to export around the world, what may it encounter when trying to sell to countries other than its own country?
Protectionist policies in other countries
A central bank that desires to reduce the quantity of money in the economy can:
Raise the reserve requirements.
If an economist is a proponent of free trade amongst nations, what would be concerning about the proliferation of regional trade agreements?
Regional trade agreements may restrict trade from outside of the regions in the agreement.
Corporate stock_____.
Represents ownership in a firm.
The federal reserves monetary policies include changes in
Reserve requirements
An interest rate is the price of borrowing money and the ______.
Reward for lending money
If the Fed raises reserve requirements, then interest rates will ____ and the money supply will ____.
Rise: Decrease
When the supply of loanable funds shifts its position to the left, interest rates will _____ because loanable funds will be ______.
Rise;More scarce
Looking at historical trends, what would you all say is a long term trend in trade policies?
Tariffs continue to be reduced over time.
Assuming that income tax is the only source of revenue for the government, with tax revenue of $50 billion and government outlays of $70 billion, which of the following is true of the government's budget?
The government has a budget deficit of $20 billion.
When the supply of loanable funds exceeds demand for loanable funds...
The interest rate will fall.
What is the reasoning behind having the 7 board of governors remain for 14 years on the Federal Reserve?
The longer terms are to insulate the members from immediate political pressures and have them focus solely on economic solutions for the nation.
Which of the following is an example of what backs fiat money?
Trust the public has that it can be exchanged for service and goods.
International trade policies benefiting from specialization and comparative advantage can make the average worker better off, but a trade off is________.
Workers could lose their jobs.
A central bank that wants to increase the quantity of money in the economy will:
buy bonds in open market operations.
When inflation begins to climb to unacceptable levels in the economy, the government should:
use contractionary fiscal policy to shift aggregate demand to the left.
