MACRO FINAL STUDY GUIDE

With a marginal propensity to save of .4, the marginal propensity to consume will be: A. 1.0 minus .4. B. .4 minus 1.0. C. the reciprocal of the MPS. D. .4.

A. 1.0 minus .4.

As it relates to Federal Reserve activities, the acronym FOMC describes the: A. Federal Open Market Committee. B. Federal Options Market Committee. C. Federal Organization for Monetary Control. D. Federal Organization for Money Creation.

A. Federal Open Market Committee.

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively: A. 0.8 and 5.0 B. 0.4 and 2.5 C. 0.4 and 1.67 D. 0.2 and 1.25

A. 0.8 and 5.0

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will: A. Increase by $100 billion B. Decrease by $100 billion C. Increase by $16 billion D. Will not change

A. Increase by $100 billion

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the: A. M1 money supply will decline and the M2 money supply will remain unchanged. B. M1 and M2 money supplies will not change. C. M1 money supply will increase and the M2 money supply will remain unchanged. D. M1 and M2 money supplies will both decline.

A. M1 money supply will decline and the M2 money supply will remain unchanged.

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the: A. Slope of the consumption schedule is .75 B. Average propensity to consume is .75 C. Marginal propensity to save is .20 D. Marginal propensity to consume is .6

A. Slope of the consumption schedule is .75

Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

A. a medium of exchange.

The seven members of the Board of Governors of the Federal Reserve System are: A. appointed by the president with the confirmation of the Senate. B. elected by Congress from a slate of nominees provided by the president. C. appointed by the Senate Finance Committee. D. appointed by the presidents of the 12 Federal Reserve Banks.

A. appointed by the president with the confirmation of the Senate.

As disposable income goes up, the: A. average propensity to consume falls B. average prosensity to save falls. C. volume of consumption declines absolutely. D. volume of investment diminishes.

A. average propensity to consume falls

If the multiplier in an economy is 5, a $20 billion increase in net exports will: A. increase GDP by $100 billion. B. reduce GDP by $4 billion. C. decrease GDP by $100 billion. D. increase GDP by $20 billion.

A. increase GDP by $100 billion.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will: A. increase by $10 billion. B. increase by $2.10 billion. C. decrease by $4.29 billion. D. increase by $4.29 billion.

A. increase by $10 billion.

The purchasing power of money and the price level vary: A. inversely. B. directly during recessions but inversely during inflations. C. directly but not proportionately. D. directly and proportionately.

A. inversely.

The relationship between the real interest rate and investment is shown by the: A. investment demand schedule. B. consumption of fixed capital C. schedule saving schedule. D. aggregate supply curve.

A. investment demand schedule.

When commercial banks use excess reserves to buy government securities from the public: A. new money is created. B. commercial bank reserves increase. C. the money supply falls. D. checkable deposits decline.

A. new money is created.

If Trent's MPC is .80, this means that he will: A. spend eight-tenths of any increase in his disposable income. B. spend eight-tenths of any level of disposable income. C. break even when his disposable income is $8,000. D. save two-tenths of any level of disposable income.

A. spend eight-tenths of any increase in his disposable income.

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is .5. Aggregate expenditures must have increased by: A. $100 billion. B. $50 billion. C. $500 billion. D. $5 billion.

B. $50 billion.

The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent. This information is consistent with the bank having: A. $90,000 in outstanding loans and $35,000 in reserves. B. $90,000 in checkable deposit liabilities and $32,000 in reserves. C. $20,000 in checkable deposit liabilities and $10,000 in reserves. D. $90,000 in checkable deposit liabilities and $35,000 in reserves.

B. $90,000 in checkable deposit liabilities and $32,000 in reserves.

If the reserve ratio is 100 percent, the value of the monetary multiplier is: A. 0. B. 1. C. 10. D. 100.

B. 1.

In the U.S. economy, the money supply is controlled by the: A. U.S. Treasury. B. Federal Reserve System. C. Senate Committee on Banking and Finance. D. Congress.

B. Federal Reserve System.

Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then: A. unemployment will decrease domestically. B. U.S. real GDP will fall. C. inflation will occur domestically. D., U.S. real GDP will rise.

B. U.S. real GDP will fall.

Which of the following are all assets to a commercial bank? A. Demand deposits, stock shares, and reserves. B. Vault cash, property, and reserves. C. Vault cash, property, and stock shares. D. Vault cash, stock shares, and demand deposits.

B. Vault cash, property, and reserves.

When a check is drawn and cleared, the A. reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction. B. bank against which the check is cleared loses reserves and deposits equal to the amount of the check. C. bank receiving the check loses reserves and deposits equal to the amount of the check. D. bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

B. bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

The reserves of a commercial bank consist of: A. the amount of money market funds it holds. B. deposits at the Federal Reserve Bank and vault cash. C. government securities that the bank holds. D. the bank's net worth.

B. deposits at the Federal Reserve

When a bank loan is repaid, the supply of money: A. is constant, but its composition will have changed. B. is decreased C. is increased. D. may either increase or decrease.

B. is decreased

The primary purpose of the legal reserve requirement is to: A. prevent banks from hoarding too much vault cash. B. provide a means by which the monetary authorities can influence the lending ability of commercial banks. C. prevent commercial banks from earning excess profits. D. provide a dependable source of interest income for commercial banks.

B. provide a means by which the monetary authorities can influence the lending ability of commercial banks.

If the monetary authorities want to reduce the monetary multiplier, they should: A. lower the required reserve ratio. B. raise the required reserve ratio. C. increase bank reserves. D. lower interest rates.

B. raise the required reserve ratio.

If you place a part of your summer earnings in a savings account, you are using money primarily as a: A. medium of exchange. B. store of value. C. unit of account. D. standard of value.

B. store of value.

To say that coins are "token money" means that: A. their face value is less than their intrinsic value. B. their face value is greater than their intrinsic value. C. their face value is equal to their intrinsic value. D. they are not legal tender.

B. their face value is greater than their intrinsic value.

Assume that in a private closed economy consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus: A. saving is $10 billion. B. unplanned decreases in inventories of $10 billion will occur. C. the MPC is .80. D. unplanned increases in inventories of $10 billion will occur.

B. unplanned decreases in inventories of $10 billion will occur.

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves? A. $16,000. B. $84,000. C. $24,000. D. $20,000.

C. $24,000.

Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by: A. $100 billion. B. $90 billion. C. $40 billion. D. $50 billion.

C. $40 billion.

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are: A. $100. B. $1,000. C. $5,000. D. $12,000.

C. $5,000.

Suppose a family's consumption exceeds its disposable income. This means that its: A. MPC is greater than 1. B. MPS is negative. C. APC is greater than 1. D. APS is positive.

C. APC is greater than 1.

If the consumption schedule is a straight line, it can be concluded that the: A. APC is necessarily constant B. MPC is zero C. MPC is constant at various levels of income D. APC is equal to the MPC

C. MPC is constant at various levels of income

Which of the following statements best describes the 12 Federal Reserve Banks? A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because: A. government spending is more employment-intensive than is either consumption or investment spending. B. government spending increases the money supply and a tax reduction does not. C. a portion of a tax cut will be saved. D. taxes vary directly with income.

C. a portion of a tax cut will be saved

If you are estimating your total expenses for school next semester, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

C. a unit of account.

Small-denominated time deposits, by definition: A. mature in one month or less. B. mature in one year or less. C. are less than $100,000. D. are held by state and local banks only.

C. are less than $100,000.

Dissaving occurs where: A. income exceeds consumption. B. saving exceeds consumption. C. consumption exceeds income. D. saving exceeds income.

C. consumption exceeds income.

If a lump-sum income tax of $25 billion is levied and the MPS is .20, the: A. saving schedule will shift upward by $5 billion. B. consumption schedule will shift downward by $25 billion. C. consumption schedule will shift downward by $20 billion. D., consumption schedule will shift upward by $25 billion.

C. consumption schedule will shift downward by $20 billion.

A decline in disposable income: A. increases consumption by moving upward along a specific consumption schedule. B. decreases consumption because it shifts the consumption schedule downward. C. decreases consumption by moving downward along a specific consumption schedule. D. increases consumption because it shifts the consumption schedule upward.

C. decreases consumption by moving downward along a specific consumption schedule.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the: A. prime rate. B. discount rate. C. federal funds rate. D. treasury bill rate.

C. federal funds rate.

Money is destroyed when: A. loans are made. B. checks written on one bank are deposited in another bank. C. loans are repaid. D. the net worth of the banking system declines.

C. loans are repaid.

The greater the required reserve ratio, the: A. higher is the spending multiplier. B. lower is the spending multiplier. C. lower is the monetary multiplier. D. higher is the monetary multiplier.

C. lower is the monetary multiplier.

Credits cards are: A. the fastest growing component of the M1 money supply. B. near-monies that are part of the M2 money supply but not the M1 money supply. C. not money, as officially defined. D. also known as time deposits.

C. not money, as officially defined.

In a mixed closed economy: A. government purchases and saving are injections, while investment and taxes are leakages. B. taxes and government purchases are leakages, while investment and saving are injections C. taxes and savings are leakages, while investment and government purchases are injections. D. taxes and investment are injections, while saving and government purchases are leakages.

C. taxes and savings are leakages, while investment and government purchases are injections.

The investment demand curve will shift to the right as a result of: A. an increase in the excess production capacity available in industry. B. an increase in business taxes. C. technological progress. D. an increase in the acquisition and maintenance cost of capital goods.

C. technological progress.

The consumption schedule is such that: A. both the APC and the MPC increase as income rises. B. the APC is constant and the MPC declines as income rises. C. the MPC is constant and the APC declines as income rises. D. the MPC and the APC must be equal at all levels of income.

C. the MPC is constant and the APC declines as income rises.

Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by: A. $8 billion B. $13.3 billion C. $15 billion D. $20 billion

D. $20 billion

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of: A. $1,250. B. $120,000. C. $5,000. D. $3,750.

D. $3,750.

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of: A. $122,000. B. $175,000. C. $300,000. D. $75,000.

D. $75,000.

The Federal Reserve System was created in: A. 1926. B. 1946. C. 1895. D. 1913.

D. 1913.

Which of the following is correct? A. Required reserves minus actual reserves equal excess reserves. B. Required reserves equal excess reserves minus actual reserves. C. Required reserves equal actual reserves plus excess reserves. D. Actual reserves minus required reserves equal excess reserves.

D. Actual reserves minus required reserves equal excess reserves.

The paper money used in the United States is: A. National Bank Notes. B. Treasury Notes. C. United States Notes. D. Federal Reserve Notes.

D. Federal Reserve Notes.

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? A. Decreased by $600. B. Increased by $1,800. C. Increased by $600. D. Increased by $1,200.

D. Increased by $1,200.

Which of the following is not part of the M2 money supply? A. Money market mutual fund balances. B. Money market deposit accounts. C. Currency. D. Large-denominated time deposits.

D. Large-denominated time deposits.

If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that: A. The marginal propensity to consume is also 0.9 B. The marginal propensity to save is 0.1 C. Consumption is $900 billion D. Saving is $90 billion

D. Saving is $90 billion

Money functions as: A. a store of value. B. a unit of account. C. a medium of exchange. D. all of these.

D. all of these.

In a private closed economy, when aggregate expenditures exceed GDP: A. GDP will decline. B. business inventories will rise. C. saving will decline. D. business inventories will fall.

D. business inventories will fall.

Excess reserves refer to the: A. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. B. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. C. difference between actual reserves and loans. D. difference between actual reserves and required reserves.

D. difference between actual reserves and required reserves.

In the aggregate expenditures model, it is assumed that investment: A. automatically changes in response to changes in real GDP. B. changes by less in percentage terms than changes in real GDP. C. does not respond to changes in interest rates. D. does not change when real GDP changes.

D. does not change when real GDP changes.

Commercial banks and thrift institutions: A. differ because thrifts cannot make loans. B. differ because thrifts cannot offer checkable deposits. C. have become less similar in recent years. D. have become increasingly similar in recent years.

D. have become increasingly similar in recent years.

If 100 percent of any change in income is spent, the multiplier will be: A. equal to the MPC. B. 1. C. zero. D. infinitely large.

D. infinitely large.

Currency held in the vault of First National Bank is: A. counted as part of M1. B. counted as part of M2 but not M1. C. only counted as part of M1 if it was deposited into a checking account. D. not counted as part of the money supply.

D. not counted as part of the money supply.

The size of the multiplier is equal to the: A. slope of the consumption schedule. B. reciprocal of the slope of the consumption schedule. C. slope of the saving schedule. D. reciprocal of the slope of the saving schedule.

D. reciprocal of the slope of the saving schedule.

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: A. the MPS. B. its actual reserves. C. its excess reserves. D. the reserve ratio.

D. the reserve ratio.

The Federal Open Market Committee (FOMC) is made up of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

D. the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.