Macroeconomic - Exam 3 Review

If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after two years? A)$2,005.25 B)$2,010 C)$2,200 D)$2,205

$2,205

Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves of $300,000. The bank hasexcess reserves of: A)$50,000. B)$100,000. C)$200,000. D)$300,000.

$200,000

If the reserve requirement is 10%, a withdrawal of $500 leads to a potential decrease in the money supply of: A)$50. B)$2,500 C)$5,000. D)$4,500.

$5,000

The _____ oversee(s) the main tool of monetary policy. A)12 regional Federal Reserve banks B)Federal Open Market Committee C)Council of Economic Adviser sD)Congressional Budget Office

Federal Open Market Committee

The _____ is the central bank of the United States. A)Federal Deposit Insurance Corporation B)Federal Reserve System C)Securities and Exchange Commission D)U.S. Treasury

Federal Reserve System

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true? A)Both M1 and M2 were reduced by $5,000. B)M1 went down by $5,000, but M2 was unchanged C)Neither M1 nor M2 changed because the transfer was done at the same bank. D)M1 and M2 both rose by $5,000.

M1 went down by $5,000, but M2 was unchanged

Disposable income in equal to: A) Y-T B) Y+T C) T-Y D) X-M

Y-T

Which of the following is the LEAST liquid? A)money in a savings account B)a Picasso painting C)a U.S. Treasury bond D)$100 in cash

a Picasso painting

If a government collects $1,400 in tax revenue and spends $1,600, it has: A)a surplus of $200. B)a deficit of $200. C)a balanced budget of $200 D)a public debt of $200.

a deficit of $200 ($1,600 - $1,400 = $200)

Successful barter in a primitive economy necessitates: A)a double coincidence of wants. B)a low interest rate. C)an increasing money supply. D)a fixed supply of money.

a double coincidence of wants

The Laffer curve demonstrates that: A)above some point on the tax rate scale, lowering tax rates increases tax revenues. B)if tax rates are 100%, there will be large tax revenues. C)policymakers can always increase tax revenues by raising tax rates. D)policymakers will always reduce tax revenues by raising tax rates.

above some point on the tax rate scale, lowering tax rates increases tac revenues

The 12 Federal Reserve banks and their branches do all of the following EXCEPT: A)distribute coins and currency. B)regulate and supervise member banks. C)serve as a banker for the U.S. Treasury. D)accept deposits from U.S. citizens.

accept deposits from U.S. citizens

Which action is NOT a tool of monetary policy? A) changing the discount rate B) changing government spending and taxes C) changing reserve requirements D) open market operations

changing government spending and taxes

Fiat money: A)was initially used by an automobile manufacturer. B)is made out of commodities such as gold or silver C)does not necessarily have any intrinsic value but has been declared by a government to be money. D)loses its value over time.

does not necessarily have any intrinsic value but has been declared by a government to be money

The _____ rate is the rate at which banks charge each other for overnight loans, while the _____ rate is the rate at which regional Federal Reserve banks charge depository institutions for short-term loans. A)bank prime; discount B)discount; federal funds C)bank prime; federal funds D)federal funds; discount

federal funds; discount

Which of these is a basic goal of the Federal Reserve System? A)full employment B)a balanced federal budget C)zero interest rates D)export promotion

full employment

Liquidity refers to: A)how fast money can be transferred from one account to another account. B)how quickly, easily, and reliably an asset can be converted into a medium of exchange. C)how easily cash can be transported across national borders. D)how fast money travels throughout the economy.

how quickly, easily, and reliably an asset can be converted into a medium of exchange

The _____ lag can be expected to last 18 to 24 months. A)information B)recognition C)implementation D)decision

implementation

The _____ lag is the time required to turn fiscal policy into law to have an impact on the economy. A)information B)recognition C)implementation D)decision

implementation

Suppose the economy is in a recession, To increase demand using discretionary fiscal policy, the government can: A) raise interest rates B) rise taxes or reduce government spending C) increase government spending or reduce taxes D) reduce interest rates

increase government spending or reduce taxes

The largest source of federal government revenues is: A)corporate income taxes. B)Social Security taxes. C)individual income taxes. D)excise and estate taxes.

individuals income taxes

The _____ lag is the time policy makers must wait for economic data to be collected, processed, and reported. A)information B)recognition C)implementation D)decision

information lag

If a bank is subject to a reserve requirement of 15%, then it is required to: A)place 15% of its deposits in the vault. B)lend out 15% of its deposits. C)place 15% of its deposits in the account with its regional Federal Reserve bank. D)place 15% of its deposits in the account with its regional Federal Reserve bank or the vault.

place 15% of its deposit in the account with its regional Federal Reserve back or the vault

The _____ is the sum of past _____. A)public debt; national debts B)public debt; budget deficits C)budget deficit; public debts D)budget deficit; national debts

public debt; budget deficits

The _____ lag is the time it takes for policymakers to confirm that the economy is trending in or out of a recession. A)information B)recognition C)implementation D)decision

recognition

The crowding-out effect can drive up interest rates, which _____ consumer spending on durable goods and _____ business investment. A)reduces; increases B)reduces; reduces C)increases; reduces D)increases; increases

reduces; reduces

If an expansionary policy pushes output beyond the full employment level of GDP: A)the economy will undergo deflation. B)the natural rate of unemployment will fall. C)production costs will decrease D)the short-run aggregate supply curve will shift to the left.

the short-run aggregate supply curve will shift to the left

Legislators debate for six months on which spending programs to utilize to manipulate the business cycle. This is an example of the: A)recognition lag. B)information lag. C)decision lag. D)implementation lag.

decision lag

Open market operations involve the purchase and sale of: A)government securities. B)corporate bonds. C)municipal bonds. D)utility bonds.

government securities

Corporate bonds generally have a _____ return on investment than do checking deposits because bonds are _____. A)higher; less risky B)higher; riskier C)lower; less risky D)lower; riskier

higher; riskier

The price of a bond is equal to: A)yield divided by interest payment. B)interest payment divided by yield. C)yield times interest payment. D)yield times inflation rate.

interest payment divided by yield

The reward for saving is called _____, and this variable is placed on the _____ axis of the loanable funds market graph. A)interest; horizontal B)interest; vertical C)investment; horizontal D)investment; vertical

interest; vertical

The demand curve for loanable funds represents _____ and is _____. A)investors; horizontal B)investors; downward sloping C)savers; horizonta lD)savers; downward sloping

investors; downward sloping

Money: A)is anything that is accepted in exchange for other goods and services or for payment of debt. B)is anything that is backed by precious metal. C)is currency. D)has to have an intrinsic value.

is anything that is accepted in exchange for other goods and services or for payment of debt

The Federal Open Market Committee: A)is independent of the Board of Governors. B)is composed of all the regional bank presidents. C)is composed of the Board of Governors and five other regional Reserve Bank presidents. D)None of the answers is correct.

is composed of the board of governors and five other regional Reserve Banks presidents

M2 is _____ in dollar value than M1; it also contains _____ assets. A)larger; less liquid B)larger; more liquid C)smaller; less liquid D)smaller; more liquid

larger; less liquid

Crowding out: A)refers to government spending crowding out imports. B)aids expansionary fiscal policy. C)cancels out expansionary fiscal policy. D)leads to higher interest rates.

leads to higher interest rates

Rising productivity will increase economic growth and raise the average standard of living, shifting the _____ curve to the _____. A)long-run aggregate supply; right B)long-run aggregate supply; left C)aggregate demand; left D)short run aggregate supply; left

long-run aggregate supply; right

Transfer payments are: A)monies paid directly to individuals by the government. B)not part of the government budget. C)a vital part of discretionary fiscal policy. D)payments made to government officials who transfer them back to private companies.

monies paid directly to individuals by the government

Automatic stabilizers include all of the following EXCEPT: A)unemployment compensation benefits. B)welfare payments. C)national defense spending. D)tax revenues.

national defense spending

_____ government spending, _____ transfer payments, and _____ taxes are all examples of contractionary fiscal policy. A)Reducing; increasing; raising B)Reducing; reducing; raising C)Reducing; reducing; reducing D)Raising; increasing; raising

reducing; reducing; raising

_______ are all examples of mandatory spending. A) social security, interest on the national debt, and Medicare B) national defense, income security, and veterans benefits C) national defense, social security, and veterans benefits D) social security, veterans benefits, and Medicare

social security, interest on the national debt, and Medicare

Increased government _____ leads to a larger increase in GDP when compared to the same reduction in _____. A)spending; taxes B)taxes; spending C)revenue; government expenditures D)expenditures; prices

spending; taxes

If Jack Sparrow buries a chest of gold on a deserted island and plans to come back for it later, then the gold is functioning as a: A)unit of account. B)store of value. C)medium of exchange. D)barter tool.

store of value

If the marginal propensity to consume is 0.9, by how much will $100 of government spending increase GDP? A)$90 B)$100 C)$1,000 D)$900

$1,000

If the reserve requirement is 25%, a new deposit of $1,000 leads to a potential increase in the money supply of: A)$4,000. B)$250. C)$10,000. D)$5,000.

$4,000

Suppose the government implements a policy reducing the rewards earned by savers. In this case, the _____ loanable funds shifts _____. A)supply of; left B)supply of; right C)demand for; left D)demand for; right

supply of, left

If there is a general rise in fear of the financial system: A)the potential multiplier will rise. B)the potential multiplier will fall C)the actual multiplier will rise. D)the actual multiplier will fall.

the actual multiplier will fall

____ is the amount by which annual government spending exceeds tax revenues. A) the budget deficit B) the budget surplus C) public debt D) government investment

the budget deficit

Suppose the ZZZCorporation sells a one-year coupon bond for $1,000 and its coupon payment is $100. In this example, the yield is _____. If instead the price of the bond is $500, the yield is _____. A)10%; 10% B)100%; 200% C)100%; 100% D)10%; 20%

10%; 20%

If the reserve requirement is 1%, what is the money multiplier? A)100 B)10 C)1 D)0

100

The Federal Reserve System includes _____ regional banks. A)50 B)25 C)12 D)4

12

The yield on a perpetuity bond that has an interest payment of $60 and a price of $1,200 is: A)5% B)6% C)12% D)25%.

5%

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for thisbank is _____, and _____ meeting its reserve requirement. A)186%; it is not B)53.76%; it is C)0.002%; it is not D)20%, it is

53.76%; it is

Mandatory spending comprises nearly _____ of the federal budget. A)one-fourth B)one-third C)one-half D)two-thirds

two-thirds

Serving as a _____ is a function of money that gives us a yardstick by which we can measure and compare the value of a wide variety of goods and services. A) medium of exchange B) unit of account C) store of value D) medium of interaction

unit of account

What are the primary functions of money? A) unit of account, medium of exchange, store of value B) unit of liquidity, medium of exchange, store of value C) unit of exchange, medium of account, store fo value D) unit of account, medium of exchange, store of liquidity

unit of account, medium of exchange, store of value

M1 includes: A)cash, savings deposits, demand deposits, money market deposit accounts, small-denomination time deposits, and shares in retail money market mutual funds. B)cash, demand deposits, and small-denomination time deposits. C)cash, demand deposits, and large-denomination time deposits. D)cash, demand deposits, and other checkable deposits.

cash, demand deposits, and other checkable deposits

Contractionary fiscal policy is typically used to: A)combat inflation stemming from an overheated economy. B)combat a recession due to deficient demand. C)restore the balance of payments D)balance the federal budget.

combat inflation stemming from an overheat economy

Assume taxes increase by $200 and the marginal propensity to consumer is 0.75. We would expect: A)equilibrium income to remain the same. B)equilibrium income to rise by $800. C)equilibrium income to fall by $800. D)equilibrium income to fall by $600.

equilibrium income to fall by $600

_____ are all examples of discretionary spending. A)Social Security, interest on the national debt, and Medicare B)National defense, income security, and veterans' benefits C)National defense, Social Security, and veterans' benefits D)Social Security, veterans' benefits, and Medicare

national defense, income security, and veterans' benefits

The formula for calculating the reserve ratio is: A)total deposits divided by the reserve requirement. B)reserves times the reserve requirement. C)reserves divided by the reserve requirement D)reserves divided by total deposits.

reserves divided by total deposits

When government spending increases, the aggregate demand curve shifts to the _____ and the multiplier effect is dampened by a _____ in the aggregate price level. A)right; fall B)right; rise C)left; fall D)left; rise

right; fall

If the Fed increases the supply of money in the market, bond prices will _____ and interest rates will _____. A)fall; rise B)rise; fall C)rise; rise D)fall; fall

rise; fall

Which of these is likely to lead to higher interest rates? A) a less positive economic outlook B) the end of a government program that provides taxpayers with additional incentives to vest in their retirement plans C) a decrease in asset prices D) a decrease in firms expectations about the economy

the end of a government program that provides taxpayers with additional incentives to vest in their retirement plans

When workers lose their hob, they file for unemployment benefits; therefore government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending on unemployment programs shrinks. Based on the given information, which of the following is correct? A) unemployment benefit programs are an example of discretionary fiscal policy B) unemployment compensation if a form of an automatic stabilizer C) the spending on unemployment benefits is designed to increase short-run aggregate supply during recessions D) unemployment benefits programs are an example of a supply-side policy

unemployment compensation if a form of an automatic stabilizer