Macroeconomics Final - Review

Potential GDP is an estimate of the economy's ability to produce goods and services if the... a. labor force if fully employed b. price level is stable c. trade balance is zero d. federal budget is balanced

a. labor force if fully employed

The numerical value of the MPC is typically... a. less than 1 b. equal to 1 c. greater than 1 d. unpredictable

a. less than 1

Banks are required to keep a minimum level of reserves on hand. The intent of this regulation is... a. monetary control rather than bank safety b. bank safety in case of bank runs c. maintenance of bank profits d. limiting the level of bank profits

a. monetary control rather than bank safety

The system of measurement for expressing macroeconomic data is called... a. national income accounting b. balance of payment accounting c. generally accepted accounting principles d. double entry bookkeeping

a. national income accounting

If the banking system has $5 million in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased? a. $25 million b. $20 million c.$5 million d. $2.5 million

b. $20 million

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased? a. $10,000 b. $8,000 c. $4,000 d. $2,000

b. $8,000

Assume that consumption in the United States is $9,000 billion in 1998. If the MPC is 0.8 and disposable income increases by $1,000 billion in 2001, then the level of consumption in 2001 will be... a. $10,000 billion b. $9,800 billion c. $9,000 billion d. cannot be determined

b. $9,800 billion

Table 11-1: Y= C + I + G + X - IM C= 500 +.8(Y-T) I=300 G=700 T=.25Y What is the level of consumption in this model? a. 2,950 b. 2,750 c. 2,550 d. 2,350 e. 2,150

b. 2,750

If the required reserve ratio, m, is 2- percent, then the oversimplified money multiplier is... a. 10 b. 5 c. 4 d. 2

b. 5

If wages rise by 12 percent at the same time prices rise by 3 percent, then the increase in real wages is equal to... a. 12 percent b. 9 percent c. 6 percent d. 3 percent

b. 9 percent

Which of the following is considered to be an investment in economists' point of view? a. Serena buys bonds issued by Citibank b. John constructs a new house c. Venus invests hundred thousand dollars in Bear Stearns stock d. Allen sells the old truck he used for transporting goods

b. John constructs a new house

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent? a. The bank has $500,00 of required reserves and $500,00 of excess reserves b. The bank has $600,000 of required reserves and $400,000 of excess reserves c. The bank has $400,000 of required reserves and $600,000 of excess reserves d. The bank has $200,000 of required reserves and $800,000 of excess reserves

b. The bank has $600,000 of required reserves and $400,000 of excess reserves

The primary feature of money is that it serves as... a. barter value b. a medium of exchange c. intrinsic value d. commodity value

b. a medium of exchange

Total amount spent on final goods and services in US in the year 2007 was eight trillion dollars. This total spending is referred to as... a. investment demand b. aggregate demand c. market demand d. consumption demand

b. aggregate demand

Workers are generally in a better position to protect themselves from inflation in comparison to retired persons because workers' incomes... a. are more likely to be fixed b. are more likely to be variable c. always rise during inflation d. are guaranteed by the federal government

b. are more likely to be variable

The relationship between consumer spending and disposable income is called the... a. conjunction function b. consumption function c. aggregate demand function d. marginal spending function

b. consumption function

According to the convention followed in the text, "money" consists all of the following except... a. coins b. credit cards c. checkable deposits d. paper money

b. credit cards

An increase in the reserve ratio would tend to... a. increase excess reserves and raise the money multiplier b. decrease excess reserves and decrease the money multiplier c. increase excess reserves and decrease the money multiplier d. decrease excess reserves and raise the money multiplier

b. decrease excess reserves and decrease the money multiplier

The relationship between consumption and disposable income is such that as... a. consumption rises, disposable income falls b. disposable income rises, consumption rises c. disposable income rises, consumption falls d. disposable income rises, savings fall

b. disposable income rises, consumption rises

A sudden decrease in consumers' wealth-resulting, for example, from a stock market crash-would initially cause a(n)... a. downward movement along the consumption function b. downward shift of the consumption function c. upward movement upward movement along the consumption function d. upward shift of the consumption function

b. downward shift of the consumption function

Liquidity refers to... a. rapidity with which money flows through the economy b. ease with which an asset can be converted into cash c. ease with which banks move funds from checking to savings accounts d. All of the above are correct

b. ease with which an asset can be converted into cash

If you as a lender want an increase in purchasing power of 4 percent from making a loan and you set the nominal interest rate at 9 percent, then your... a. real rate of interest is 13 percent b. expected rate of inflation is 5 percent c. expected rate of inflation is 13 percent d. real rate of interest is 36 percent

b. expected rate of inflation is 5 percent

In the national income accounts, new investment goods are considered... a. intermediate goods, and therefore, not counted b. final foods c. subtractions from final output d. depreciated goods

b. final foods

Historical data on a scatter diagram show that consumer spending and disposable income... a. converge as income grows b. generally move together c. diverge as income grows d. show now clear relationship

b. generally move together

In comparison to commodity value, paper money... a. is not portable b. has no intrinsic value c. is not divisible d. cannot be stored e. All of the above are correct

b. has no intrinsic value

Bankers' business decisions effect the money supply because bankers a. are respected men and women b. have the ability to create money c. use a special account system developed by the Federal Reserve Board d. All of the above are correct

b. have the ability to create money

If Congress votes to increase government purchases and at the same time decrease personal income taxes, they... a. have decided to balance the federal budget b. have voted for the proper policy to counteract a recessionary gap c. have voted for the proper policy to counteract an inflationary gap d. are trying to achieve a federal budget surplus

b. have voted for the proper policy to counteract a recessionary gap

If banks decided to keep a lower fraction of deposits on reserve, the money supply will... a. decrease b. increase c. remain unchanged d. move more quickly through the economy

b. increase

If the population increase in India is smaller than the increase in Indian real GDP, then GDP per capita will... a. decrease b. increase c. remain constant d. increase more slowly than real GDP

b. increase

The shortfall between actual real GDP and potential GDP... a. decreases as the unemployment rate rises b. increases as the unemployment rate rises c. increases as the employment rate rises d. decreases as the labor force increases

b. increases as the unemployment rate rises

Suppose the federal government is considering alternatives to increase the level of real GDP in order to reduce unemployment. It can only do one of the following... which will have the smallest impact on the federal budget? a. decreasing transfer payments b. increasing government spending c. increasing transfer payments d. decreasing government spending

b. increasing government spending

Milly Miser removes $250,000 from her mattress and opens a checking account. This single transaction increases the money supply by... a. $250,000 b. $50,000 c. $0 d. -$250,000

c. $0

Table 11-1: Y= C + I + G + X - IM C= 500 +.8(Y-T) I=300 G=700 T=.25Y What is the equilibrium level of income in this model? a. 5,000 b. 4,500 c. 3,750 d. 3,500 e. 3,250

c. 3,750

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve. The actual money multiplier will be... a. 10 b. 9 c. 5 d. 2 e. 1

c. 5

Table 11-1: Y= C + I + G + X - IM C= 500 +.8(Y-T) I=300 G=700 T=.25Y What is the level of saving in this model? a. 92.5 b. 72.5 c. 62.5 d. 52.5 e. 42.5

c. 62.5

Employee compensation accounts for about what percentage of national income? a. 30% b. 40% c. 70% d. 90%

c. 70%

If a U.S. citizen buys a car produced in Germany, this transaction will add to... a. U.S. aggregate demand b. U.S. aggregate supply c. German aggregate demand d. German imports

c. German aggregate demand

The marginal propensity to consume (MPC) is calculated by which formula? a. MPC = change in DI divided by change in C b. MPC = change in GDP divided by change in DI c. MPC = change in C divided by change in DI d. MPC = change in C divided by change in GDP

c. MPC = change in C divided by change in DI

Which of the following observations is not true? a. Money is divisible b. Value of money never remains the same c. Money has intrinsic value d. Money is the most liquid form of asset

c. Money has intrinsic value

An example of hyperinflation in the 1990s can be found in... a. Hungary b. Germany c. Russia d. Japan

c. Russia

Which of the following would be a liability to a bank? a. cash in the vault b. a loan to a new business c. a checking account of a professor d. All of the above are correct

c. a checking account of a professor

The difference between a fixed tax and a variable tax is that... a. fixed taxes can never be changed, but variable taxes can be changed b.a change in fixed taxes has no effect on aggregate demand, but a change in variable taxes has an impact c. a variable tax changes when GDP changes, but a fixed tax does not change with GDP d. a variable tax can be changed easily, whereas changing fixed taxes requires a constitutional amendment

c. a variable tax changes when GDP changes, but a fixed tax does not change with GDP

Which of the following would lead you to predict an upward shift in the consumption function? a. a decrease in the value of real wealth b. a decrease in disposable income c. an increase in the value of real wealth d. an increase in the price level

c. an increase in the value of real wealth

Changes in government spending... a. are an indirect component of the expenditure schedule b. have a different multiplier effect than changes in business investment spending c. are a direct component of the expenditures schedule and have the same multiplier effect as changes in business investment spending d. do not have an effect on spending if they are matched by tax changes

c. are a direct component of the expenditures schedule and have the same multiplier effect as changes in business

If fears of a terrorist attack are widespread and people lose faith in money, the economy could revert to a system of... a. cash and checks b. double-entry bookkeeping c. barter d. financial intermediaries

c. barter

Many economists believe that savings accounts should be added to M1 because they... a. are larger in size than conventional checking accounts b. pay larger interest than checking accounts c. can be transferred quickly into checkable accounts d. are also insured by the federal government

c. can be transferred quickly into checkable accounts

According to economics, one of the signs of an unhealthy economy is a(n)... a. rising labor productivity b. increasing real GDP c. declining real GDP d. declining unemployment

c. declining real GDP

The value of intermediate goods is not included in the calculation of GDP to avoid the problem of... a. depreciation b. inflation c. double counting d. transfer payments

c. double counting

The net export component of aggregate demand is defined as US... a. imports minus US exports b. imports plus US exports c. exports minus US imports d. exports minus taxes and customs duties

c. exports minus US imports

With regard to GDP, residential property taxes are an example of __________ taxes. a. variable b. sales c. fixed d. disposable

c. fixed

If real disposable income is $300 billion and real consumer expenditures are $250 billion, it can be assumed that... a. the government is spending the difference b. the difference is being invested c. households are saving the difference d. transfer payments make up the difference

c. households are saving the difference

The German inflation rate after World War 1 was measured in the thousands of percents. This condition is referred to as... a. fundamental inflation b. environmental inflation c. hyperinflation d. episodic inflation

c. hyperinflation

For each $1 of a tax cut, economists expect consumption to... a. decrease by $1 b. decrease by less than $1 c. increase by less than $1 d. increase by $1

c. increase by less than $1

In Macronesia, the MPC is approximately .80. If disposable income changes from 1,000 billion pukas to 1,500 billion pukas, then consumption will change by a(n)... a. decrease of 500 billion pukas b. increase of 500 billion pukas c. increase of 400 billion pukas d. increase of 800 billion pukas

c. increase of 400 billion pukas

In order to maintain a balanced budget, Congress has decided to cut taxes and government spending both by $25 billion. What will happen to GDP? a. it will increase b. in will remain the same c. it will decrease d. it's impossible to know without the multiplier

c. it will decrease

On a graph with consumption on the vertical axis and disposable income on the horizontal axis, the slope of the line... a. greater than one b. equal to one c. less than one d. undefined

c. less than one

Faster economic growth in the United States may lead to the serious macroeconomic problem of higher... a. levels of unemployment b. federal budget deficits c. levels of inflation d. levels of poverty

c. levels of inflation

The distinction between M1 and M2 is based on... a. portability- the ease with which an asset can be moved b. divisibility- the ease with which an asset can be used to make smaller payments c. liquidity- the ease with which an asset can be converted into cash d. storability- how long an asset will retain its value

c. liquidity- the ease with which an asset can be converted into cash

If the price level increases, we would expect consumers to... a. raise their consumption functions b. move downward along their consumption functions c. lower their consumption functions d. move upward along their consumption functions

c. lower their consumption functions

Money's principal function is to serve as a... a. standard for making loans b. standard for credit reporting c. medium of exchange d. method for storing wealth

c. medium of exchange

On which of the following assets are you most likely to earn interest income? a. cash and currency b. checkable deposits c. money market deposit accounts d. gold and other precious metals e. All the above are correct

c. money market deposit accounts

A bank run involves a large flow of money... a. into bank depositors' accounts b. into checking and savings accounts c. out of depositors' accounts d. out of individuals' cash reserves into money market funds

c. out of depositors' accounts

Once the expenditure schedule has been adjusted for tax levels, the determination of equilibrium GDP... a. is no longer possible b. becomes much more difficult c. proceeds exactly as before d. requires a higher multiplier value

c. proceeds exactly as before

If inflation is expected by both borrowers and lenders, then we would expect... a. real rates to be higher than nominal rates of interest b. real rates to be equal to nominal rates of interest c. real rates to be lower than nominal rates of interest d. nominal rates of interest to be less than expected inflation rate

c. real rates to be lower than nominal rates of interest

The "investment" component of aggregate demand will include all of the following except... a. expenditures of business firms on new plants b. expenditures of business firms on new equipment c. resales of existing physical assets d. household spending on new homes

c. resales of existing physical assets

If personal taxes are increased by $10 billion, we can expect that consumers will reduce... a. spending by $10 billion b. spending by more than $10 billion c. spending by less than $10 billion d. saving by $10 billion e. saving by more than $10 billion

c. spending by less than $10 billion

The main reason that the 1975 and 2001 tax cuts did not have a large effect on GDP is that it was a... a. temporary surcharge rather than a permanent surcharge b. permanent surcharge rather than temporary surcharge c. temporary tax cut rather than a permanent tax cut d. permanent tax cut rather than a temporary tax cut

c. temporary tax cut rather than a permanent tax cut

If consumers' expectations about future income is very optimistic, then we should expect.. a. the consumption function to shift downward b. consumers to move up along the consumption function c. the consumption function to shift upward d. consumers to move down along the consumption function

c. the consumption function to shift upward

A major employer in a small town announces upcoming major layoffs of employees. What should we expect to happen to the consumption functions of the affected employees? a. the consumption functions will shift upward b. most employees will move upward along their consumption functions c. the consumption functions will shift downward d. most employees will move downward along their consumption functions

c. the consumption functions will shift downward

Whirlpool Corporation buys steel in sheets to manufacture refrigerators. Whirlpool also buys a new factory and metal press to mold the steel. Which purchases are included in GDP? a. the steel b. the steel, the factory, and the metal press c. the factory and the metal press d. the steel and the metal press

c. the factory and the metal press

During inflationary periods... a. the real value of money rises b. the real value of money remains constant c. the real value of money falls d. the purchasing power of money rises

c. the real value of money falls

If the MPC increases in value, what will happen to the slope of the consumption function? a. the slope will decrease and the consumption function will become flatter b. the slope will decrease and the consumption function will become steeper c. the slope will increase and the consumption function will become steeper d. the slope will increase and the consumption function will become flatter

c. the slope will increase and the consumption function will become steeper

Banks try to keep their level of excess reserves low because... a. the Fed charges a penalty for holdings of excess reserves b. they are concerned that the money multiplier will become too large c. they wish to maximize profits d. bank regulators levy fines on the amount of excess reserves

c. they wish to maximize profits

Money is almost always used to quote prices. This illustrates the function of money as a... a. medium of exchange b. store of value c. unit of account d. commodity value

c. unit of account

Do bankers create money? a. no, they cannot do this as private businesses b. no, they are prevented by federal law c. yes, through multiple deposit creation d. yes, by opening checking accounts for customers

c. yes, through multiple deposit creation

The banking system receives a new cash deposit of $250,000. Total deposits eventually rise by $1 million. The value of the reserve ratio is... a. 25 b. 4 c. 0.50 d. 0.25 e. 0.20

d. 0.25

The nation's disposable income increases by $400 billion, and as a result, consumer spending increases by $320 billion. Therefore, the MPC equals... a. 0.16 b. 0.20 c. 0.60 d. 0.80 e. 0.96

d. 0.80

The slope of the scatter diagram representing the relationship between consumption and disposable income in the United States is approximately... a. 1.10 b. 0.30 c. 0.50 d. 0.90

d. 0.90

Table 11-1: Y= C + I + G + X - IM C= 500 +.8(Y-T) I=300 G=700 T=.25Y What is the level of tax revenues in this model? a. 1,000 b. 950 c. 945.4 d. 937.5 e. 437.5

d. 937.5

Which of the following should be subtracted while calculating aggregate demand of the US? a. Pakistan's purchase of F-16s from the US b. Computers imported by China from US c. Memorabilia purchases in the US by a foreign tourist d. A US firm's purchase of German machinery

d. A US firm's purchase of German machinery

Barter is a system of... a. trade without the use of money b. trading one good for another c. the double coincidence of wants d. All of the above are correct

d. All of the above are correct

If prices rise, then persons living on fixed incomes will... a. see their real incomes falling b. see the purchasing power of their savings fall c. need to spend more to maintain their standard of living d. All of the above are true

d. All of the above are true

Most people base their current consumption spending at least partially on... a. short-run debt b. long-run debt c. long-run real interest rates d. long-run income

d. long-run income

In addition to fiscal policy, the other main tool used to affect aggregate demand is... a. trade policy b. industrial policy c. planning policy d. monetary policy

d. monetary policy

If real interest rates decrease, we should expect... a. saving to increase b. saving to decrease c. consumption spending to decrease d. no significant change in saving

d. no significant change in saving

Melissa purchases shares in a government bond mutual fund. Is this included in the aggregate demand component "investment"? a. yes, if it is a domestic mutual fund b. yes, if the purchase is made out of current income c. no, unless the funds are deposited in a domestic financial institution d. no, it would never be included

d. no, it would never be included

Electronic cash or E-cards are... a. included in the M1 definition of the money supply b. included in the M2 definition of the money supply c. included in the M3 definition of the money supply d. not included in the definition of money supply

d. not included in the definition of money supply

Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts? a. permanent tax cuts have a greater effect on expected long-run inflation b. permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective c. permanent tax cuts cause movement along the consumption functions, while temporary tax cuts shift the consumption function d. permanent tax cuts affect expectations of long-run income more than temporary tax cuts

d. permanent tax cuts affect expectations of long-run income more than temporary tax cuts

The federal government's principal tool in altering consumer spending is changing... a. corporate income taxes b. federal sales taxes c. unemployment insurance benefits d. personal income tax rates

d. personal income tax rates

Consumption functions would shift downward if... a. disposable incomes fall b. disposable incomes rise c. price levels fall d. price levels rise

d. price levels rise

When aggregate demand decreases rapidly, the economy is likely to experience... a. inflation b. economic boom c. economic growth d. recession

d. recession

An active stabilization policy designed to limit the size of government would... a. raise G to eliminate a recessionary gap and lower taxes to eliminate an inflationary gap b. raise G to eliminate a recessionary gap and raise taxes to eliminate an inflationary gap c. reduce taxes to eliminate a recessionary gap and raise G to eliminate an inflationary gap d. reduce taxes to eliminate a recessionary gap and reduce G to eliminate an inflationary gap

d. reduce taxes to eliminate a recessionary gap and reduce G to eliminate an inflationary gap

Economists feel that taxing nominal capital gains imposes costs on the economy due to... a. increased consumption b. reduced consumption c. increased investment d. reduced investment

d. reduced investment

Most of the taxes collected by governments tend to... a. remain fixed b. move in the opposite direction from GDP c. be sales taxes d. rise and fall with the level of GDP

d. rise and fall with the level of GDP

The purchase of stocks and bonds is included in which component of GDP? a. saving b. investment c. consumer spending d. they are not included in GDP

d. they are not included in GDP

Do economists know the value of the MPC for most economies? a. yes, with a high level of precision b. yes, with a certainty level of four decimal places c. no, it is impossible to determine a national MPC d. yes, but with some level of uncertainty

d. yes, but with some level of uncertainty

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions... a. decreases the money supply by $1,000 b. decrease the money supply by $200 c. does no change the money supply d. increases the money supply by $200 e. increases the money supply by $800

e. increases the money supply by $800

According to economists, how does an increase in the inflation rate affect the consumption function? a. it shifts the function upward b. it shifts the function downward c. it causes movement upward along the function d. it causes movement downward along the function e. it has no predictable effect on the function

e. it has no predictable effect on the function

The difference between disposable income and consumption spending is... a. transfer payments b. personal taxes c. net exports d. personal investment e. personal saving

e. personal saving

The difference between national income and disposable income is... a. residential investment b. federal deficits c. net exports d. financial investment e. the amount of taxes collected

e. the amount of taxes collected

As of December 31, 2008, the assets listed on the balance sheet of Bank A were: $1.5 million in cash reserves, and $6 million in outstanding loans to its customers. Its liabilities totaled $6.5 million in checking deposits. What was the bank's net worth on that date? a. $1 million b. $4.5 million c. $5 million d. $14 million e. Zero

a. $1 million

The Marginal Propensity to Consumer (MPC) is defined as the change in... a. C over the change in DI b. income over the change in disposable income c. DI over the change in C d. total income over the change in net income

a. C over the change in DI

Which of the following definitions of the money supply includes only the most liquid forms of money? a. M1 b. M2 c. savings deposits d. money market mutual fund

a. M1

If Ms. Anniston transfers $1,000 from her checking account to her money market account, then... a. M1 falls and M2 remains the same b. M1 falls and M2 rises c. both M1 and M2 rise d. M1 remains the same and M2 rises

a. M1 falls and M2 remains the same

According to the relationship represented by the consumption function, governments can indirectly decrease consumption spending by... a. increasing taxes b. decreasing transfers c. decreasing taxes d. decreasing government spending

a. increasing taxes

The one category of goods that are not sold but are, nevertheless, included in GDP is... a. inventories b. imports c. consumer services d. exports

a. inventories

Which of the following will most likely cause movement along the consumption function? a. a change in the disposable income b. a change in interest rates c. a change in tastes d. a change in consumers' expectations

a. a change in the disposable income

Which of the following would be most likely to shift the consumption function downward? a. a stock in market crash b. a price level decrease c. increased corporate profits d. a stock market boom

a. a stock in market crash

Which of the following is the best example of an intermediate good? a. a tire purchased by an auto company b. a new house purchased by a newly married couple c. grain sold to foreign farmers d. all of the above are intermediate goods

a. a tire purchased by an auto company

With the invention of banking, one important aspect of money was that... a. banks have some discretion over the money supply b. banks have complete control over the money supply c. governments lost all control over the money supply d. individuals have no discretion over the money supply

a. banks have some discretion over the money supply

Which of the following groups would most likely to benefit from inflation... a. borrowers b. lenders c. creditors d. pensioners

a. borrowers

When nominal interest rates are held below inflation rates, then households will have an incentive to... a. consume b. save c. purchase financial assets d. postpone current consumption plans

a. consume

When a bank makes loans with excess reserves, it... a. creates money d. destroys money d. alters the composition of M1 c. leaves the money supply unchanged

a. creates money

If the Japanese economy is currently suffering from a recession we should expect U.S. exports to Japan to... a. decrease b. increase c. remain the same d. increase only if the Japanese Yen depreciates

a. decrease

Governments can affect the level of aggregate demand in a direct way by changing... a. government spending b. exports c. taxes d. transfer payments

a. government spending

Aggregate demand is defined as the total spending... a. of all consumers, business firms, government agencies, and foreigners on final goods and services produced in the US b. by all consumers, business firms, government agencies, and foreigners in the US c. consumers, businesses, government agencies, and foreigners wish to make in one year d. of consumers, businesses, and government agencies on final output

a. of all consumers, business firms, government agencies, and foreigners on final goods and services produced in the US

When government increases a fixed tax, consumption schedule... a. shifts downward in a parallel manner b. shifts upward in a parallel manner c. becomes horizontal d. becomes vertical

a. shifts downward in a parallel manner

Disposable income is obtained by... a. subtracting personal income taxes from personal income b. subtracting personal income taxes from national income c. adding transfer payments to national income d. adding transfer payments to personal income

a. subtracting personal income taxes from personal income

The "efficiency of the payments mechanism" refers to... a. the ease and speed of exchanging money for goods and services b. how fast member banks replenish required reserves c. how fast banks pay interest on deposit accounts d. how fast countries pay off foreign debts

a. the ease and speed of exchanging money for goods and services

If all variable taxes in the United States were removed any only fixed taxes remained, what would be the effect on the expenditures schedule? a. the expenditure schedule will shift upward and become steeper b. the expenditure schedule will shift upward and become less steep c. the expenditure schedule will shift downward and become less steep d. the expenditure schedule will shift downward and become steeper

a. the expenditure schedule will shift upward and become steeper

If an economist wants to make a prediction about the effects of a change is disposable income on the change in consumption spending based on historical data, she must assume that... a. the future will closely resemble the past b. consumption and disposable income will be negatively related c. the consumption function will have a downward slope d. as disposable income increases, consumer spending will remain constant

a. the future will closely resemble the past

Growth in potential GDP depends on... a. the labor force rate, capital stock growth rate, and rate of technical process b. government spending, growth in prices, and labor productivity c. cyclical fluctuations and growth in the capital stock d. growth in real GDP, nominal GDP, and the population

a. the labor force rate, capital stock growth rate, and rate of technical process

Under fractional banking, when a bank lends to a customer... a. the money supply increases b. bank profitability is decreased c. the bank is protected from a run d. bank credit decreases

a. the money supply increases

The unemployment rate is equal to... a. the number of unemployed people divided by the labor force b. the number of unemployed divided by the population c. the number of unemployed divided by the number employed d. the labor force divided by the population

a. the number of unemployed people divided by the labor force

Money is an imperfect store of value when... a. the rate of inflation is high b. the unemployment rate is high c. gold prices are falling d. businesses are failing due to bankruptcy

a. the rate of inflation is high

"Men are disposed, as a rule, and on the average, to increase their consumption as their income increases, but not by as much as the increase in their incomes." Which of the following is consistent with this statement by J.M. Keynes? a. the slope of the consumption function is positive and less than one b. the slope of the consumption function is greater than that of the 45-degree line c. the slope of the consumption function is negative d. the slope of the consumption function is equal to one

a. the slope of the consumption function is positive and less than one

The largest income component in the national income accounts is... a. wages b. rents c. corporate profits d. interest

a. wages

How does an increase in government transfer payments affect aggregate demand... a. it has the same effect as a tax increase, which lowers AD with a larger multiplier than a spending decrease b. it has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending c. it has the same effect as a spending decrease, which increases AD with a larger multiplier than a tax cut d. it has the same effect as a spending decrease, which increases AD with a larger multiplier than a spending decrease

b. it has the same effect as a tax cut, which increases AD but with a smaller multiplier than a change in spending

President Clinton, at the beginning of his administration , increased personal income taxes on individuals with relatively high incomes. How will this change the consumption schedule? a. it will shift and become steeper b. it will shift and become flatter c. it will shift in a parallel manner d. it will remain fixed as the economy moves along the schedule

b. it will shift and become flatter

Fractional reserve banking takes its name from the fact that banks... a. hold only a fraction of their reserves at the bank itself b. keep only a fraction of their total deposits on reserve c. lend only a fraction of their total reserves to customers d. reserve only a fraction of their activity for lending

b. keep only a fraction of their total deposits on reserve

When you compare the effects of government spending on aggregate demand with the effects of taxes on aggregate demand, the effects of government spending are... a. smaller b. larger c. the same d. impossible to predict!

b. larger

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves... a. are disliked by depositors b. means lower profits for banks c. are discouraged by government regulators d. All of the above are correct

b. means lower profits for banks

Disposable income can be defined as national product... a. minus federal and state taxes b. minus taxes plus transfers c. minus indirect taxes d. plus taxes plus transfers

b. minus taxes plus transfers

One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are... a. better stores of value than those added to compute M2 b. more liquid than those added to compute M2 c. less liquid than those added to computer M2 d. larger than those added to computer M2

b. more liquid than those added to compute M2

When we add a personal income tax to the macroeconomic model, the... a. multiplier becomes larger b. multiplier becomes smaller c. expenditures schedule shifts upward d. expenditures schedule becomes steeper

b. multiplier becomes smaller

The basic equation for a bank's balance sheet is... a. assets = liabilities - net worth b. net worth = assets - liabilities c. net worth = assets + liabilities d. liabilities = net worth + assets

b. net worth = assets - liabilities

The federal government collects taxes on... a. real capital gains b. nominal capital gains c. real capital losses d. nominal capital losses

b. nominal capital gains

Investment goods are counted in GDP because they are... a. intermediate goods b. purchased in their final forms c. usually exported as foreign investment d. deductible business expenses

b. purchased in their final forms

The nominal interest rate is the sum of the... a. real interest rate and the historic rate of inflation b. real interest rate and the expected rate of inflation c. historic rate of inflation and the expected rate of inflation d. expected rate of inflation and the rate of price level increases

b. real interest rate and the expected rate of inflation

An increase in taxes will cause the consumption schedule to... a. shift upward b. shift downward c. remain fixed as the economy moves upward along the schedule d. remain fixed as the economy moves downward along the schedule

b. shift downward

"Fiscal policy" is the federal government's plan for... a. international trade, designed to balance exports and imports b. spending and taxes, designed to influence the level of aggregate demand c. manipulating the money supply and the control of interest rates d. All of the above

b. spending and taxes, designed to influence the level of aggregate demand

If the price of pizzas has risen from $4 to $5 at the same time that the price of an hour of spinning class has risen from $20 to $30, then... a. pizzas have become relatively more expensive b. spinning classes have become relatively more expensive c. the relative prices of pizzas and spinning classes have remained constant d. workers' real income must have decreased

b. spinning classes have become relatively more expensive

The estimate of potential GDP would decrease if... a. the rate of capital depreciation increased b. the labor force decreased c. the price level grew d. All of the above would increase potential GDP

b. the labor force decreased

Which of the following would be counted as investment in the national income accounts? a. the purchase of a newly issued stock b. the purchase of a newly built apartment house c. the purchase of a newly minted coin d. the payment of tuition at a private college

b. the purchase of a newly built apartment house

Consumer spending represents about what fraction of total spending in the economy? a. one-fifth b. two-thirds c. one-third d. two-fifths e. three-fourths

b. two-thirds

The tax cut of 2001 had little significant effect on consumer spending because it... a. was not large enough b. was perceived as temporary c. came too early in the year d. was subtracted from 2000 taxes due

b. was perceived as temporary

Which of the following transactions is included in GDP? a. you buy a used car $10,000 b. an unemployed worker receives a check for $450 as unemployment benefits c. you buy a one-acre lot in Florida where you plan to build a beach house d. Honda builds 1,000 Accords in Kentucky at a cost of $25,000 each but is unable to sell them, and therefore, they are added to inventory

d. Honda builds 1,000 Accords in Kentucky at a cost of $25,000 each but is unable to sell them, and therefore, they are added to inventory

Workers in country A receive an increase in wages of 10 percent at the same time the inflation rate in country A is 8 percent. Workers in country B receive an increase in wages of 3 percent and the inflation rate in country B is 1 percent. In which country are workers better off? a. Country A because their real wages rise by 18 percent b. Country A because their real wages rise by 10 percent c. Country B because the inflation rate is lower d. Neither country because the increase in real wages is the same

d. Neither country because the increase in real wages is the same

Are "smart cards" of E-cash cards part of the money supply? a. Yes, because they can be given away to make a payment b. Yes, because they will soon completely replace cash c. No, because they are not issued by banks d. No, because they are merely means to transfer checking deposits

d. No, because they are merely means to transfer checking deposits

Which of the following would cause an upward shift in the consumption function? a. a stock market crash b. an increase in the price level c. a decrease in disposable income d. a decrease in the price level

d. a decrease in the price level

Which of the following is a transfer payment? a. work-study students receive wages transferred from the university budget b. a company pays the moving expenses for a transferred employee c. a student transfers to another college and receives a tuition rebate d. a student receives a tuition grant from the federal government

d. a student receives a tuition grant from the federal government

Aggregate demand is the total demand for... a. all intermediate and final goods b. all monetary investments c. real and financial investments d. all final goods and services

d. all final goods and services

GDP can be calculated by the value-added approach, which... a. is useful in avoiding double counting b. includes only the value-added portion from the sale of goods and services c. includes the revenue a firm receives from selling a product minus the amount paid for goods purchased from other firms d. all of the above are correct

d. all of the above are correct

Suppose the federal government wants to encourage businesses to increase investment spending. Which policy may be the most effective? a. an increase in corporate income taxes b. an increase in real interest rates c. an increase in warnings of a coming recession d. an increase in tax deductions for investment spending

d. an increase in tax deductions for investment spending

Which of the following will most likely have the greatest effect on an individual's consumption function? a. winning a small amount in the lottery b. a one-time tuition grant c. a week of high overtime pay d. an inheritance paying a modest annual dividend

d. an inheritance paying a modest annual dividend

If you produce a graph with consumption spending on the vertical axis and disposable income on the horizontal axis, the relation between consumption and income will... a. be inverse b. be transcendental c. shift unpredictably d. be direct

d. be direct

Last year your job at the university cafeteria paid you $9 an hour and the price of a ten-minute long distance call was $4. This year your cafeteria job pays $9.90 an hour and the ten-minute phone call now costs $4.10. You are clearly... a. worse off because of inflation b. worse off because the phone call is now relatively more expensive c. better off because your wage rate went up d. better off because the phone call now costs less work

d. better off because the phone call now costs less work

A movement from one point to another point on the same consumption function could be caused due to... a. changes in wealth b. an increase in the general price level c. decrease in the real interest rates d. changes in disposable income

d. changes in disposable income

The largest portion of the M1 money supply consists of... a. coins in circulation b. paper currency in circulation c. savings deposits at credit unions d. checkable deposits

d. checkable deposits

Which of the following assets is most liquid? a. short-term government bonds b. savings accounts c. checking accounts d. currency and coins

d. currency and coins

A run on a bank may occur if... a. depositors withdraw some funds to invest in the stock market b. required reserves are increased c. interest rates are raised d. depositors lose confidence in the bank and attempt to withdraw all their funds e. All of the above

d. depositors lose confidence in the bank and attempt to withdraw all their funds

___________ is the income actually available to the consumers that determines aggregate demand. a. nominal income b. net domestic product c. income corrected for depreciation d. disposable income

d. disposable income

Currently in the United States, money is backed by... a. silver in the IMF vaults b. Federal Reserve notes in banks c. gold in Fort Know d. everyone's willingness to accept it

d. everyone's willingness to accept it

Any reserves held by a bank above the amount of minimum legal reserves are called... a. total reserves b. required reserves c. fiat money d. excess reserves

d. excess reserves

Most statistical studies on the relationship between real interest rates and saving conclude that higher real interest rates... a. increase saving b. tend to decrease saving c. tend to decrease both consumption and saving d. have no effect on saving

d. have no effect on saving

In 1963, government economists assumed that the MPC for the United States was approximately 0.90. If taxes were cut by $90 billion, then consumer expenditures would be expected to... a. decrease by $90 billion b. increase by $90 billion c. decrease by $81 billion d. increase by $81 billion

d. increase by $81 billion