Macroeconomics Final Test Practice
The Federal Reserve System was established in...
1913
Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is...
3%
If the marginal propensity to save is 0.25, the multiplier is...
4
If the reserve requirement is 20%, the money multiplier is...
5
If the reserve requirement is 18.5%, what is the money multiplier?
5.4
Which of the following statements about stopping hyperinflation is NOT correct?
Borrowing from foreign governments must take place
In which city is the Federal Reserve's Board of Governors?
DC
If a country's population increases at a slower rate than the growth in its real GDP...
GDP per capita has increased
Which Eurozone country had to be bailed out by the European Central Bank?
Ireland
The study of macroeconomics as a specific discipline is due primarily to...
John Maynard Keynes
Which of the following is NOT involved in regulating financial markets?
New York Stock Exchange
what is NOT a criticism of the Fed's handling of the 2007-2009 financial crisis?
The Fed should have strengthened the dollar to shore up exports
Which of the following is an example of gross private domestic investment?
a change in business inventories
Which one of the following items is NOT a function of money?
a double coincidence of wants
The most important function of money is...
a medium of exchange
When government spending rises...
aggregate demand rises
Which of the following does NOT increase productivity?
an increased money supply
Which of the following factors will cause the aggregate demand curve to shift to the left?
appreciation of the dollar
The use of money as a medium of exchange helps reduce the inefficiencies inherent in...
barter
Which of the following lists represents monetary policy actions that are consistent with one another?
buy government bonds, lower reserve requirements, lower the discount rate
what would increase the money supply?
buying government bonds
In using the income approach to GDP, the largest category is...
compensation of employees
According to the crowding out effect, if the government sells bonds to finance spending, _____ can eventually fall.
consumption and investment
The most common type of short-term debt is...
credit card debt
When the economy is operating at the natural rate of unemployment...
cyclical unemployment is zero
Automatic stabilizers are most associated with the ______ balanced budget.
cyclically
Which group is helped by inflation?
debtors
Assuming full employment in the classical model, if velocity increases and the government wants stable prices, the government should...
decrease the money supply
Thelma grew some carrots in her garden. She needs a winter coat. John has an extra coat he doesn't need but would like to bake some carrot cake. The two find each other and make an exchange. This situation is called the...
double coincidence of wants.
An economy has historically grown at a rate of 2.25%. Currently, this economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle.
expansion
If Abigail withdraws $300 cash from her checking account, then her bank's assets...
fall by $300, and her liabilities fall by $300
Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living...
fell by about 1%.
Gross private domestic investment, which consists of _______________ and changes in private inventories, is an important determinant of _______________________.
fixed investments; swings in the business cycle
In the circular flow diagram, the clockwise direction shows the flow of _____, where households supply _____ and businesses supply _____.
goods and services; labor; goods and services
As a rule, the more capital employed with workers, the ________ their productivity and the ________ their earnings.
higher; higher
Which of the following actions would reduce frictional unemployment?
holding job fairs
A change in the Leading Economic Index is supposed to reflect...
how the economy will behave in the near future
The _____ lag is the time required to turn fiscal policy into law and affect the economy.
implementation
technology...
improves the productivity of all factors
Which of the following factors is NOT a component of aggregate demand?
income
For your purchasing power to stay the same, your wages must...
increase at the same rate as inflation
Government spending on Social Security...
increases aggregate demand
Property rights consist of _____ goods that _____ be easily measured.
intangible; cannot
The National Bureau of Economic Research...
is a nonprofit research organization that dates business cycles in the United States
One important reason economists track business investment is that...
it is a leading indicator of the business cycle
The costs of cyclical unemployment can be minimized by...
keeping the economy on a steady, low-inflationary growth path
Bonds are considered to be _____ than stocks because ____.
less risky; bondholders are less affected by a firm's bankruptcy
transfer payments are...
monies paid directly to individuals by the government.
The _____ let(s) economists judge our nation's economic performance, compare U.S. income and output to that of other nations, and track the economy's condition over the course of the business cycle.
national income and product accounts
Tom is living with his parents. He looks at the help wanted ads but has not replied to any in the past four weeks. Tom is...
not in the labor force
the classical form of the production function states that...
output = f(L,K)
checking account balances are...
part of M1 and part of M2.
In the national income accounts, which of the following is NOT classified as government spending?
payments to Social Security recipients
When Main Street Bank buys new automatic teller machines, the quantity of _____ in the economy increases.
physical capital
One argument against using taxation to pay off the public debt is that it will redistribute wealth from...
poorer people who do not own bonds to richer bondholders.
Advantages of coins over bills include all of the following EXCEPT that...
production costs are lower for coins than for bills.
The consumer price index does NOT include...
property taxes
Over the past century, when worker productivity rose...
real wages rose
Because of the wealth effect, a rising aggregate price level ____ the purchasing power of wealth and therefore _____ output demanded.
reduces; reduces
A monetary rule would make it difficult to...
respond to unforeseen events
The membership of the Board of Governors of the Federal Reserve System consists of...
seven persons appointed by the President of the United States
The Great Depression demonstrated that...
short-run equilibrium can occur at substantially less than full employment
the aggregate demand curve...
shows the amount of real GDP that will be demanded at each possible price level
Which of the following is NOT a form of U.S. public debt?
stocks
Which of the following occurrences is the key explanation for the high economic growth in the United States in the past century?
technology improvements
Suppose the Federal Reserve Bank of Chicago's National Activity Index drops to -0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that...
the economy has probably moved into a recession
Which of the following is likely to lead to higher interest rates?
the end of a government program that provides taxpayers with additional incentives to invest in their retirement plans
Monetary targeting is setting a steady growth rate in...
the money supply
One issue regarding the national debt is that...
the proportion of the debt held by foreigners is rising.
Short-run macroeconomic equilibrium cannot be achieved when...
the quantity of short-run aggregate supply exceeds the quantity of aggregate demand
the labor force is defined as...
the total number of the employed and unemployed
Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is...
unemployed
The corporate income tax constitutes ________ of federal government revenues.
up to 25%
The short-run aggregate supply curve is ____ and the long-run aggregate supply curve is ____.
upward sloping; vertical
Policymakers look at _____________ to compare growth rates over an entire year without seasonal ups and downs.
year-over-year GDP growth rates
If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after five years?
$2,552.56
If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was...
0.625%.
Over the past 150 years, the U.S. economy has endured a recession on average about every...
4 to 5 years
If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3%, and output is 3% below potential GDP, the target federal funds rate according to the Taylor rule is...
4%
Prices from about ________ goods and services are collected each month by Bureau of Labor Statistics data collectors to be used in calculating the consumer price index.
800,000
One reasonably objective measure of intangible infrastructure is the...
Index of Economic Freedom
Which of the following statements is NOT a potential problem associated with cyclically balancing the federal budget?
Inflationary pressures can take hold, leading to the need later to enact extreme contractionary policy measures.
Which is NOT a criticism of the official unemployment rate?
It is not reported frequently enough to provide a good picture of the state of the economy
Which of these countries has the largest public debt as a percentage of GDP? Japan, Canada, China, Chile
Japan
For defining money, ____ and also includes _____.
M2 includes M1; near money
Which of the following would NOT cause a shift in the short-run aggregate supply curve?
a decrease in real interest rates
_____ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange.
a monetary rule
If the intersection of the short-run aggregate supply and the aggregate demand curves also intersects the long-run aggregate supply curve, then the economy is...
at full employment
When the economy is at full employment, an expansionary fiscal policy results in a new long-run equilibrium at an output level _______ full employment and a _________ price level.
at; higher
Quantitative easing refers to the process whereby the Fed...
buys securities to stimulate the economy
When the Bureau of Labor Statistics calculates the consumer price index, it assumes that...
consumers do not substitute cheaper goods for goods whose prices have risen
Which of the following is NOT a source of productivity growth?
decreasing the capital-to-labor ratio
According to public choice economists, the federal government has expanded because...
deficit spending has reduced the perceived cost of current government operations.
Which of the following assets is the MOST liquid? demand deposits, real estate, stocks, an art collection
demand deposits
The situation when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises is known as ________ inflation.
demand-pull
the three types of consumption are...
durables, nondurables, and services
Use of tax receipts to modernize the air traffic control system promotes economic growth by...
enhancing physical and human capital
When the government funds Head Start, it is acting in its role to promote economic growth by...
enhancing physical and human capital
What is the interest rate for money borrowed to satisfy daily reserve requirements?
federal funds rate
Economists who favor a(n) _____ approach to the federal budget believe that the first priority of policymakers should be to keep the economy at full employment with stable prices.
functional finance
The four types of spending in GDP are personal consumer spending, ___________ private domestic investment, government spending, and _______.
gross; net exports
If the reserve requirement is 10%, then a $6,000 decrease in deposits means that the money supply...
has the potential to decrease by $60,000
If the reserve requirement is 25%, then a $1 increase in deposits means that the money supply...
has the potential to increase by $4
Which two important leakages helped reduce the real life spending multiplier during the stimulus that was implemented during 2009?
imports and taxes
Which of the following is NOT a reason the aggregate demand curve is negatively sloped?
income effect
a lower reserve requirement...
increases the ability of banks to make loans
A rising aggregate price level _______ an economy's interest rates and therefore _____ output demanded.
increases; reduces
The housing bubble of 2004-2006 caused ____ pressures, leading the Fed to ____ interest rates.
inflationary; raise
One of the reasons that property rights are important for economic development is that without legal ownership...
loans are very difficult to obtain
The main reason people were unemployed in the United States in 2012 was because they...
lost their job
Some analysts blame the last economic crisis on Fed policy. They argue that...
low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble.
According to the Taylor rule, the lower the inflation rate, other things equal, the...
lower the federal funds target rate
A criticism of GDP per capita is that it...
might not fully reflect the standard of living of the typical citizen
in a liquidity trap...
monetary policy is ineffective in changing income and output
The U.S. Treasury sells $2 billion in bonds to the Federal Reserve. The Federal Reserve credits the Treasury's account by $2 billion. This exchange is best described as...
monetizing the debt
Which of the following assets is MOST liquid?
money
The _____ measures the maximum amount the money supply can increase when new deposits enter the system.
money multiplier
Jordan Meadows lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents, According to the Bureau of Labor Statistics, Jordan is...
not in the labor force
Tight monetary policy refers to the Fed...
raising interest rates, usually to fight inflation
If Zachary deposits $500 cash into his checking account, then his bank's assets...
rise by $500, and his liabilities rise by $500
Tightening monetary policy causes interest rates to ____ and aggregate ____ to _______.
rise; demand; decrease
When the Fed wants to decrease the money supply, it will...
sell bonds
Which action is the Fed most likely to take to curb inflation?
sell securities in the open market
The notion of functional finance says that...
the government should not focus on any deficits or surpluses caused by the budget and focus on maintaining the economy at full employment.
As the aggregate price level declines...
there is a movement down along the aggregate demand curve
