Macro Final 2 Cooperstein
A key reason that actively managed funds have lower returns than index funds with a similar level of risk is that:
Management and trading costs reduce the returns of actively managed funds
An investor owns bond 1 that has a rate of return of 10 percent, but a similar bond 2 has an 11 percent return and equal risk. By selling bond 1 and buying bond 2 to earn a higher return, the investor is engaging in:
Arditrage
Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to real GDP?
Real GDP doesn't change
One concern regarding educational attainment in the U.S. is that:
There are fewer college graduates in science and engineering
During the Financial Crisis of 2007-2008, investors demanded much higher risk premiums in their investments. This caused the SML to:
Become steeper
The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors
Real estate and Financial markets
Increasing returns would be a situation where a firm increases its workforce and other inputs by:
5 percent and its output incresaes by 8 percent
An increase in input productivity will:
reduce the equilibrium price level, assuming downward flexible prices
The investment demand curve portrays an inverse relationship between:
the real interest rate and investment.
Other things equal, if the real interest rate falls and business taxes rise:
we will be uncertain as to the resulting change in investment
Checkable deposits are included in:
Both M1 and M2
The immediate-short-run aggregate supply curve represents circumstances where:
Both input and output prices are fixed
The recurrent ups and downs in the level of economic activity extending over several years are referred to as:
Business cycles
An example of a financial investment but not an economic investment?
Buying gold to sell later at a higher price
IN the expansionary phase of a business cycle:
Employment and output increase
New college graduates still looking for their first jobs would be classified in the BLS data as:
Frictionally unemployed
Stimulus Solution
Government actions to increase the total demand for output in the economy
The size of the MPC is assumed to be:
Greater than zero but less than one
Money spent on the purchase of a new house is included in the GDP as a part of:
Gross domestic private investment
The fed can induce banks to increase their reserve holdings by:
Increasing the interest on reserves
The multiplier applies to:
Investment, net exports, and government spending
A peak in the business cycle:
Is a temporary maximum point
The economy long run aggregate supply curve:
Is vertical
When paper money is designated as legal tender, it means that:
It is a means of payment by law
A tax reduction of a specific amount will be more expansionary the:
Larger the economy's MPC
A banks required reserves can be calculated by:
Multiplying its checkable-deposits liabilities by the reserve ratio
Sharply rising oil prices are most likely to lead to a:
Negative supply shock
The basic truth that underlies the study of economics is the fact that we all face:
Scarcity
The factor accounting for the largest increase in the productivity of labor in the United states has been:
Technological advance
What does "there is no such thing as a free lunch" mean
That scarce resources are used up to provide "freebies" and giveaways
The production possibilities curve is a graph of:
The maximum combinations of products that can be produced.
What is one of the advantages of monetary policy over fiscal policy?
The quickness with which it can be used
The multiple by which the commercial banking system can expand the supply of money is equal to:
The reciprocal of the reserve ratio
In macroeconomics models, prices are assumed to be completely inflexible in:
The very short run only
The real burden of an increase in public debt:
may be very small or conceivably zero when eh economy is in a sever depression
What would not shift the AD curve:
A change in the price level
What would shift the AD curve to the left:
An appreciation of the Dollar
In the cause-effect chain linking changes in the banks excess reserves and the resulting changes in output and employment in the economy:
An increase in the money supply will decrease the rate of interest
Given the expected rate of return on all possible investment opportunities in the economy:
An increase in the real rate of interest will reduce the level of investment.
What is one significant characteristic of fractional reserve banking?
Banks create money through lending their reserves
The actual budget deficit of the federal government in 2009 was about 1.4 trillion. On the basis of this information, it:
Cannot be determined theater the government engaged in expansionary or contractionary fiscal policy in 2009
The Federal Reserve System performs many functions but its most important one it:
Controlling the money supply
Other things equal, an appreciation of the U.S. dollar would
Decrease net exports and decrease aggregate demand
As long as there is excess total spending in the economy, what will continue
Demand Pull inflation
Which of the following are liabilities to a bank?
Demand and time deposits
In the aggregate expenditures model, it is assumed that investment:
Does not change when real GDP changes
If an increase in aggregate expenditures results in no increase in real GDP, we can surmise that the:
Economy is already operating at full employment
Phase of the Business cycle that is most closely related to economic contraction?
Recession
Suppose a small economy produces only HD TV sets. In year 1, 1oo,000 sets are produced and sold at a price of $1,200 each. In year 2, 100,000 sets are produced and sold at a price of $1000 each, As a result
Nominal GDP decreases, while real GDP stays constant
The GDP deflator or price index equals:
Nominal divided by real GDP
Price wars among firms:
Occur when one firm lowers its price and rival firms react by lowering their prices
Saving in the economy
Occurs when current spending is less than current incomes
What group is the principal source of savings in the economy?
Households
A bank is in the position to make loans when required reserves:
Are less than actual reserves
A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the:
Asset demand for money
A point or combination that is on the production possibilities curve is:
Attainable and resources are fully employed
Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the:
Federal Funds Rate
Which group aids the Board of Governors of the Federal Reserve System in conduction monetary policy
Federal Open Market Committee
Diversification is one's investments reduces:
Idiosyncratic risk
What has been a dominate factor of economic growth in the U.S.
Increase in labor productivity
Historically, the total amount of real capital per worker in the united states has:
Increased significantly and made labor more productive
A persons real income will increase 3% if her nominal income:
Increases by 5% while the price index rises by 2%
An economist who favored expanded government would recommend:
Increases in government spending during recession and tax increase during inflation
A measure of economic growth that is most useful in comparing living standards?
Increases in real GDP per capita
Money eliminates the need for a coincidence of wants in trading primarily through its role as a:
Medium of exchange
What function of money enables society to gain the benefits of geographic and labor specialization?
Medium of exchange
A higer rate of investment now will generate:
More future production
Which of the following varies directly with the interest rate?
Opportunity cost of holding money
If the price index is rising over a period of time, then the real GDP in years:
Prior to the base year will be larger than the nominal GDP
According to Emerson: "Want is a growing giant whom the coat of have was never large enough to cover." According to economists, "wants" exceeds "Have" because:
Productive resources are limited
A rightward shift in the aggregate supply curve is best explained by an increase in:
Productivity
The so called too-big-to-fail policy has two conflicting sides: on one hand theres the moral hazard problem that it creates, but in the other hand the fed must:
Protect the stability of the banking system
Changes in interest rates, ceteris paribus, causes a shift in:
The aggregate demand curve, but not the investment demand curve.
A recessionary expenditure gap is:
The amount by which the full-employment GDP exceeds the level of aggregate expenditures
Which of the following would be a brief definition of present value?
The current value of the expected future returns on an asset
Opportunity cost exists because:
The decision to engage in one activity means forgoing some other activity.
If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when:
The demand for money increases
The interest rate that the Fed charges banks for loans to them through the traditional a channel is called:
The discount rate
What is a major opportunity cost of going to college on a full-time basis?
The foregone income that could be earned working a full-time job
One reason that "near monies" are important is because:
They can be easily converted into money or vice versa, and thereby can influence the stability of the economy
What is a feature of all investments?
They give owners a chance to receive future payments
Economists and policy makers are committed to encouraging a high and growing level of real GDP because:
This means greater consumption opportunities
The "rule of 70" is a formula determining
Years that it would take for a value (like real GDP) to double
Int he recent financial and economic crises, the economy fell into a so called liquidity trap, which means that:
Banks held on to excess reserves and people chose to pay off loans rather than spend
