macroeconomics final

In the financial industry, "securitization" refer to

bundling groups of loans, bonds, mortgages, and other financial debts into new securities

In a private closed economy, when aggregate expenditures are below GDP

business inventories will rise

Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank

cannot safely lend out more money

The marginal propensity to save (MPS) can be defined as that fraction of a

change in income that is not spent

The Average Propensity to Consume (APC) can be defined as the fraction of a

specific level of total income that is consumed

Susie has lost her job in a Vermont textile plant 10 years ago because the plant shut down due to import competition. We can say that Susie is faced with

structural unemployment

To say that coins are "token money" means that

their face value is greater than their intrinsic value

According to the "paradox of thrift", increased efforts to save will cause

A decrease in income but no overall change in saving

When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule

equals the MPC

According to the laissez-faire economic philosophy

The government sector should play a very minimal role in the economy

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves

are $20,000

A commercial bank's reserves are

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them

When a check is drawn and cleared, the

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

What are "mortgagee-backed securities"?

bonds backed by mortgage payments

The amount by which government expenditures exceed revenues during a particular year is the

budget deficit

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be

$38 billion

Consider the following data for a hypothetical economy. Change in: Income Consumption Saving Increase in Investment $20 $____ $4.00 Second Round $____ $12.80 $____ All Other Rounds $ ____ $36.00 $____ Totals $____ $____ $20.00 Refer to the above data. The total change in income resulting from the initial change in investment will be

$100

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Government Purchases 15 Consumer Expenditures 90 Net Private Domestic Investment 20 Consumption of Fixed Capital 5 (depreciation) Exports 13 Imports 8 The Net Domestic Product (NDP) of this economy is

$130

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Government Purchases 15 Consumer Expenditures 90 Net Private Domestic Investment 20 Consumption of Fixed Capital 5 (depreciation) Exports 13 Imports 8 The Gross Domestic Product (GDP) of this economy is

$135

Consider the following data for a hypothetical economy. Change in: Income Consumption Saving Increase in Investment $20 $____ $4.00 Second Round $____ $12.80 $____ All Other Rounds $ ____ $36.00 $____ Totals $____ $____ $20.00 Refer to the above data. The change in income in round two will be

$16

Suppose the reserve requirement is 20 percent. If a bank has $4 million of checkable deposits and actual reserves of $1 million, it can safely lend out

$200,000

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Gross Private Domestic Investment $46 Exports of the U.S. 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factor Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the U.S. 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 Refer to the above data. Personal Income (PI) is

$228

Suppose the ABC bank has excess reserves of $4,000 and checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

$24,000

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Gross Private Domestic Investment $46 Exports of the U.S. 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factor Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the U.S. 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 Net Domestic Domestic Product (NDP) is

$255

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Gross Private Domestic Investment $46 Exports of the U.S. 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factor Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the U.S. 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 Refer to the above data. National Income (NI) is

$265

Consider the following data for Disposable Income (DI) and Consumption (C). DI C 200 205 225 220 250 235 275 250 300 265 Refer to the above data. If disposable income were $325, we would expect consumption to be

$280

Consider the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Assets Liabilities and Net Worth Reserves $51 Checkable deposits $140 Loans 109 Stock Shares 130 Securities 100 Property 10 Refer to the above information. The maximum amount by which the commercial banking system can expand the supply of money by lending is

$30 billion

Answer questions below on the basis of the following diagram for a private closed economy. Refer to the above diagram for a private closed economy. The equilibrium level of GDP is

$300

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 280 Consumption of Fixed Capital 15 Net Private Domestic Investment 65 Rents 10 Interest 20 Exports 30 Imports 50 Corporate Profits 25 Undistributed corporate Profits 5 Taxes on Production and Imports 25 Net Foreign Factor Income 0 Statistical Discrepancy 0 The National Income (NI) of this economy is

$380

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 300 Consumption of Fixed Capital 15 Gross Investment 80 Rents 10 Interest 20 Exports 30 Imports 50 Corporate Profits 25 Taxes on Production and Imports 5 Net Foreign Factor Income 0 Statistical Discrepancy 0 The Net Domestic Product (NDP) of this economy is

$380

Consider the following data for a hypothetical economy. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 300 Consumption of Fixed Capital 15 Gross Investment 80 Rents 10 Interest 20 Exports 30 Imports 50 Corporate Profits 25 Taxes on Production and Imports 5 Net Foreign Factor Income 0 Statistical Discrepancy 0 The Gross Domestic Product (GDP) of this economy is

$395

Assume the MPC is 0.8. If the government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by

$40 billion

Refer to the above diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both

$50

Consider the following data: C = 60 + 0.75Y, where C is Consumption and Y is Income (or GDP) Gross Investment = 60 Exports = 30 Imports = 25 The equilibrium GDP in this economy is

$500

The consumption schedule is as follows: C = 20 + 0.9Y, where C is Consumption and Y is Disposable Income. Refer to the above consumption schedule. At an $800 level of disposable income, the level of saving is

$60

Consider the following data: C = 60 + 0.75Y, where C is Consumption and Y is Income (or GDP) Gross Investment = 60 Exports = 30 Imports = 25 Refer to the above data. The equilibrium level of saving is

$65

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the required reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of

$75,000

Consider the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Assets Liabilities and Net Worth Reserves $51 Checkable deposits $140 Loans 109 Stock Shares 130 Securities 100 Property 10 The commercial banking system has excess reserves of

$9 billion

Consider the following data for Disposable Income (DI) and Consumption (C). DI C 200 205 225 220 250 235 275 250 300 265 The Marginal Propensity to Consumer (MPC) is

0.6

Consider the following data for a hypothetical economy. Change in: Income Consumption Saving Increase in Investment $20 $____ $4.00 Second Round $____ $12.80 $____ All Other Rounds $ ____ $36.00 $____ Totals $____ $____ $20.00 Refer to the above data. The MPC is

0.8

The consumption schedule is as follows: C = 20 + 0.9Y, where C is Consumption and Y is Disposable Income. Refer to the above consumption schedule. The MPC is

0.90

The Consumer Price Index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about

1.6 percent

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is

11 percent

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the required reserve ratio is

12.5 percent

If real GDP in a particular year is $120 billion and nominal GDP is $160 billion, the GDP price index for that year is

133

Consider the following data for a hypothetical economy. All figures are in millions. Unemployed 17 Total Population 195 Employed 95 Discouraged Workers 10 The rate of unemployment in this economy is:

15.17

The Federal Reserve System was created in

1913

The General Theory of Employment, Interest and Money was published in

1936

Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. Real GDP in Year 4 is

28

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions?

29 percent

Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. Real GDP in Year 5 is

32

Approximately what percentage of the U.S. public debt is held by Federal government agencies and the Federal Reserve?

41 percent

Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. Nominal GDP in Year 4 is

49

Assume the consumption schedule is given by the following equation: C = 40 + 0.8Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is

5

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is

6 percent

Consider the following data for a hypothetical economy of Scoob. All figures are in millions. Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The unemployment rate in Scoob is ____ percent.

6.9

Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. The Price Index for Year 1 is

75

Consider the following data: C = 60 + 0.75Y, where C is Consumption and Y is Income (or GDP) Gross Investment = 60 Exports = 30 Imports = 25 Refer to the above information. The economy is incurring

A trade surplus

Which of the following transactions would be included in current year's GDP?

An increase in business inventories

Until the Great Depression (1929 - 1933), the dominant school of economics was

Classical Economics

Which of the following resulted from the financial crisis of 2007-2008?

FDIC insurance was increased from $100,000 to (at least) $250,000 per account

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes and bonds) is the

Federal Open Market Committee (FOMC)

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

Federal funds rate

According to the Classical Economists, economies always tend towards

Full employment equilibrium

Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that

GDP in 2010 is $500 billion

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index was 100 in 1990 and 112.5 in 2000. Between 1990 and 2000 real GDP

Increased by $40 billion

Production automatically generates income of comparable value, and no one produces anything for the market unless they intend to buy something else. This line of reason implies that, in the aggregate, demand is automatically present if goods are supplied, and is the primary underpinning for

J. B. Say's Law of Markets

Classical economists believed in

Laissez-faire

Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?

Lehman Brothers

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion

M1 money supply will decline and M2 money supply will remain unchanged

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion

M1 money supply will not change

Which of the following financial institutions was acquired by Bank of America as a result of the financial crisis of 2007 and 2008?

Merrill Lynch

Gross Domestic Product (GDP) is the

Monetary value of all final goods and services produced within the borders of a nation in a particular year

Classical economists believed that

The economy was a self-correcting system

A recession is defined as a period in which

Real domestic output falls

J. M. Keynes considered unemployment to be

The normal state of economic affairs

Which of the following is NOT considered economic investment?

The purchase of 100 shares of AT&T by a retired business executive

TARP, created in 2008, stands for

Troubled Asset Relief Program

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

U.S. real GDP will fall

Which of the following represents the most expansionary fiscal policy

a $10 billion increase in government spending

Which of the following represents the most contractionary fiscal policy?

a $30 billion decrease in government spending

Money held in checkable deposits in commercial banks is

a liability of the commercial bank and an asset of the checkable deposit holder

When economists say that money serves as a unit of account, they mean that it is

a standard for measuring and comparing the relative values of goods

Planned investment plus unintended increases in inventories equals

actual investment

Saving is always equal to

actual investment

The 45-degree line on a graph relating consumption and income shows

all points at which consumption and income are equal

If Carol's disposable income increases from $1,200 to $1,700 and her level of consumption increases $1100 to $1400 , her marginal propensity to

consume is three-fifths

Tessa's break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of

consumption spending will be $14,500

Kara, a factory worker, was temporarily laid off until business activity picks up again. Kara presently is

cyclically unemployed

According to Keynes Select one: a. People will always spend their entire income b. All money that is saved will be invested c. The amount people are willing to spend is always sufficient to purchase all output produced d. None of the above

d. None of the above

Money functions as Select one: a. a medium of exchange b. a store of value c. a unit of account d. all of the above

d. all of the above

Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures will cause equilibrium GDP to

decrease by $50 billion

Assume the MPC is 2/3. If investment spending decreases by $2 billion, the equilibrium GDP will

decrease by $6 billion

The reserves of a commercial bank consist of

deposits at the Federal Reserve Bank and vault cash

Consider the following data for Disposable Income (DI) and Consumption (C). DI C 200 205 225 220 250 235 275 250 300 265 Refer to the above data. At the $200 level of disposable income

dissaving is $5

Consider the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Assets Liabilities and Net Worth Reserves $51 Checkable deposits $140 Loans 109 Stock Shares 130 Securities 100 Property 10 Refer to the above information. If the commercial banking system actually loans the maximum amount it is able to lend

excess reserves will be reduced to zero

Other things equal, the multiplier effect associated with a change in government spending is

greater than that associated with a change in taxes

If a multiplier in an economy is 5, a $20 billion increase in net exports will

increase GDP by $100 billion

If the MPC is 0.75 and investment increases by $5 billion, the equilibrium GDP will

increase by $20 billion

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to

increase by $45 billion

Suppose the Federal government had budget deficits of $40 billion in Year 1 and $50 billion in Year 2, but had budget surpluses of $20 billion in Year 3 and $50 billion in Year 4. The government used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have

increased by $20 billion

If 100 percent of any change in income is spent, the multiplier will be

infinitely large

If the Consumer Price Index rises from 116 to 120 in a particular year, the economy has experienced

inflation of 3.34 percent

Investment and saving are, respectively

injections and leakages

Collateralized (or credit) default swaps

insured holders of loan-backed securities in case the underlying loans were not repaid

The multiplier applies to

investment, net exports, and government spending.

When a bank loan is repaid the supply of money

is decreased

The numerical value of the multiplier will be smaller the

larger the slope of the saving schedule

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves is

larger the smaller the required reserve ratio

A commercial bank that has assets of $85 billion and a net worth of $10 billion must have

liabilities of $75 billion

Money is destroyed when

loans are repaid

The practical significance of the multiplier is that it

magnifies initial changes in spending into larger changes in GDP

Fiscal policy refers to the

manipulation of government spending and taxes to stabilize domestic output, employment and the price level.

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of

moral hazard

The ZZZ Corporation issued $25 million in new common stock in 2010. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:

of $18 million has occurred

Refer to the above diagram for a private closed economy. Unplanned changes in inventories will be zero

only at the $300 level of GDP

Which of the following best describes automatic or built-in stabilizers as they function in the United States?

personal and corporate income tax collections automatically rise and subsidies automatically decline as GDP rises

Recessions have contributed to the public debt by

reducing national income and therefore tax revenues.

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that

reserves lost by any particular bank will be gained by some other bank

At the point where the consumption schedule intersects the 45-degree line

the APC is 1.00

Fiscal policy in the United States is conducted by

the United States Congress, the President, and the Treasury

A private open economy includes

the consumption, investment and foreign trade sectors

Official unemployment statistics

understate unemployment because discouraged workers are not counted as unemployed