Dual Enrollment Macroeconomics FINAL EXAM REVIEW

In the short ​run, increased government budget deficits A. can influence real GDP, the price level, and employment. Your answer is correct. B. increase taxes. C. have no effect on equilibrium real GDP. D.

a

One-time tax rebates generally result in significant changes in consumer spending. A. False Your answer is correct. B. True

a

Elisabeth gets a new credit card with a $5,000 credit limit. Is this counted in M1​ only, M2​ only, M1 and​ M2, or​ neither? A. Neither M1 nor M2. Your answer is correct. B. M1 and M2. C. M1 only. D. M2 only.

a

Entitlements A. include payments for Medicare and other health programs such as Medicaid. Your answer is correct. B. are used to finance public goods. C. include military spending and national defense. D. have trended downward since the mid−1950s.

a

In a​ recession, automatic stabilizers such as the tax system work by A. increasing government spending and reducing taxes without requiring that a new policy be implemented. Your answer is correct. B. allowing Congress to implement new policies to increase government spending and reduce taxes. C. allowing Congress to implement new policies to reduce government spending and increase taxes. D. decreasing government spending and increasing taxes without requiring that a new policy be implemented.

a

The government just passed a new tax bill that will be applied to the economy next year. Most people will not immediately feel the impact of this new tax bill and not adjust their​ W-2 tax forms. The impact of the new tax bill​ won't become apparent to them until the following April when their tax bills are due. This problem is referred to as the A. effect time​ lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap. Your answer is correct. B. recognition time​ lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap. C. effect time​ lag, and it makes it difficult to use automatic stabilizers to close a recessionary gap. D. recognition time​ lag, and it makes it difficult to use discretionary fiscal policy to close a recessionary gap.

a

The net public debt has continually risen since the year 2000. A. True Your answer is correct. B. False

a

Until​ 1946, residents of the island of Yap used large​ doughnut-shaped stones as financial assets. Although prices of goods and services were not quoted in terms of the​ stones, the stones were often used in exchange for particularly large​ purchases, such as payments for livestock. To make the​ transaction, several individuals would place a large stick through a​ stone's center and carry it to its new owner. A stone was difficult for any one person to​ steal, so an owner typically would lean it against the side of his or her home as a sign to others of accumulated purchasing power that would hold value for later use in exchange. Loans would often be repaid using the stones. These stones performed the following functions of moneyLOADING...​: A. medium of​ exchange, store of​ value, and standard of deferred payment functions of money. Your answer is correct. B. unit of​ accounting, store of​ value, and standard of deferred payment functions of money. C. medium of​ exchange, unit of​ accounting, and store of value functions of money. D. medium of​ exchange, unit of​ accounting, and standard of deferred payment functions of money.

a

When the Fed makes an open market​ purchase, the supply curve for bonds in the private market shifts to the​ ________ and the price of bonds​ ________. A. ​left; increases Your answer is correct. B. ​right; decreases C. ​left; decreases D. ​right; increases

a

correct,Concept Question 3.9 Question Help Which of the following is a function of the Federal Reserve​ System? A. Acting as a lender of last resort to commercial banks. Your answer is correct. B. Issuing certificates of deposit and creating money market deposit accounts. C. Taking deposits of lenders to pool savings and make loans. D. Providing financing for consumer loans and mortgages. E. All of the above are functions of the Federal Reserve System.

a

Increases in output and increases in the inflation rate have been linked to A. discretionary tax policy. B. discretionary government spending. C. higher rates of interest. D. increases in the money supply.

d

A fraction of the funds borrowed by the federal government between 2008 and 2015 were utilized to fund public investments in a number of solar power companies that produced little output and halted operations. These concerns provided no repayments to the government. In what sense might this fraction of deficit spending arguably have imposed a​ "burden" on future​ generations? This spending of borrowed funds A. succeeded in contributing to future increases in real​ GDP, so future generations will have to be taxed at least at a slightly higher rate than otherwise would have been required. B. failed to contribute to future increases in real​ GDP, so future generations will have to be taxed at least at a slightly higher rate than otherwise would have been required. Your answer is correct. C. failed to contribute to future increases in real​ GDP, so future generations will have to be taxed at a slightly lower rate than otherwise would have been required. D. succeeded in contributing to future increases in real​ GDP, so future generations will have to be taxed at a slightly lower rate than otherwise would have been required.

b

According to the classical​ model, if an excess quantity of labor is supplied at a particular wage​ level, full employment will be maintained because A. the government will establish special work programs. B. wages will fall rapidly to permit businesses to continue hiring everyone who wants to work. Your answer is correct. C. the government will step in and stimulate spending. D. the equilibrium wage rate will rise to stimulate spending.

b

As a result of monetary policy of the​ Fed, the dollar appreciated and the amount of exports decreased. Which of the following Fed policies could have caused this​ outcome? A. A decrease in the discount rate. B. A Fed sale of bonds to brokers and banks. Your answer is correct. C. A decrease in the reserve requirement ratio. D. A Fed purchase of bonds from banks.

b

Required reserves A. are equal to​ 100% of deposits in a fractional reserve banking system. B. currently must be no more than​ 5% of the total checkable deposits of a depository institution. C. are the minimum amount of legal reserves that a depository institution must have to back up its checkable deposits. Your answer is correct. D. are the minimum amount of reserves that must be loaned out by a depository institution.

c

Suppose that there is a​ temporary, but significant increase in oil prices in an economy with an​ upward-sloping SRAS curve. As a policy response to this​ short-lived but sudden increase in oil​ prices, a central bank A. can stabilize neither the price level nor the real GDP. B. can stabilize both the price level and the real GDP simultaneously. C. cannot stabilize both the price level and the real GDP simultaneously. Your answer is correct. D. has no responsibility to stabilize the real GDP.

c

Assuming that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all three of its policy instruments. It sells bonds in the open​ market, increases the discount​ rate, and increases the reserve ratio. The net export effect resulting from these monetary policy actions will A. raise the interest​ rate, decrease the inflows of international​ capital, decrease the value of the​ dollar, increase​ exports, and as a consequence real GDP will increase. B. raise the interest​ rate, increase the inflows of international​ capital, increase the value of the​ dollar, decrease​ exports, and as a consequence real GDP will decline even further. Your answer is correct. C. lower the interest​ rate, increase the inflows of international​ capital, increase the value of the​ dollar, decrease​ imports, and as a consequence real GDP will decline even further. D. lower the interest​ rate, increase the inflows of international​ capital, decrease the value of the​ dollar, decrease​ imports, and as a consequence real GDP will increase.

b

Due to the​ Gramm-Leach-Bliley Act of 1999 A. allowed European central banks to unite into the European Union Bank. B. the US government allowed commercial banks to own stock and sell insurance policies. Your answer is correct. C. the US government forbid US commercial banks to own stock of any other business domestic or foreign. D. the US government forbid US commercial banks to own stock of foreign banks and businesses.

b

Fiscal policy is likely to be least effective A. when it is automatic. B. during normal economic times. Your answer is correct. C. during wartime. D. when it is permanent.

b

From the end of WWII through 1983 the U.S. government had consistently experienced A. a budget surplus. B. a trade surplus. Your answer is correct. C. a trade deficit. D. a budget deficit.

b

In an open​ economy, if the federal government has a budget​ deficit, the trade balance is more likely to be A. either a deficit or​ surplus; it depends on macroeconomic conditions. B. a deficit. Your answer is correct. C. balanced. D. a surplus.

b

What backs up the value of U.S.​ dollars? A. Gold. B. Faith that the dollars represent command over goods and services. Your answer is correct. C. Gold denominated Federal Reserve System assets. D. Foreign currency reserves held by the Federal Reserve System.

b

Which of the following best describes the linkage between money and​ prices? A. Money and prices are not related to each other. B. Decreases in the money supply are directly related to decreases in prices in the long run. Your answer is correct. C. Increases in the money supply are directly related to decreases in prices in the long run. D. Decreases in the money supply are directly related to increases in prices in the long run.

b

Which of the following is a true​ statement? A. The FDIC has reduced the problem of moral hazard but not the problem of adverse selection. B. The FDIC has reduced the number of depositors who have lost​ savings, but in doing​ so, has inadvertently encouraged banks to make riskier loans. Your answer is correct. C. Moral hazard is a problem that occurs before a transaction takes place when asymmetric information is a problem. D. Adverse selection occurs after a transaction has taken place in insurance markets.

b

A company issues corporate bonds to finance a new building project. Is this counted in M1​ only, M2​ only, M1 and​ M2, or​ neither? A. M2 only. B. M1 only. C. Neither M1 nor M2. Your answer is correct. D. M1 and M2.

c

A contractionary monetary policy lowers equilibrium real GDP in the short​ run, by increasing the interest rate. In an open​ economy, the net export effect A. has no effect on real GDP since changes in exports and imports cancel each other. B. reinforces the effect of a contractionary monetary policy since the increase in the interest​ rate, increases the value of​ dollar, lowers U.S. imports and causes the real GDP to fall. C. reinforces the effect of a contractionary monetary policy since the increase in the interest​ rate, increases the value of​ dollar, lowers U.S. exports and causes the real GDP to fall. Your answer is correct. D. weakens the effect of a contractionary monetary policy since the increase in the interest​ rate, increases the value of​ dollar, increases U.S. exports and causes the real GDP to increase.

c

During normal economic​ times, when there is not​ "excessive" unemployment or​ inflation, discretionary fiscal policy A. is used frequently to effectively​ fine-tune the economy. B. is not used due to legal restrictions on the ability of Congress to make policy. C. is probably not very effective due to lags and the uncertainty created by repeated tax policy changes. Your answer is correct. D. is a way of effectively spurring economic growth.

c

If the Fed increases the discount​ rate, relative to the federal funds​ rate, then this A. would cause the required reserve ratio to decrease. B. would cause the money supply to increase. C. would increase the cost of funds for institutions borrowing from the Fed. Your answer is correct. D. would decrease the cost of funds for institutions borrowing from the Fed.

c

Imagine that the net public debt of a​ country's government was currently​ $6 trillion. The debt was entirely held or owned by the citizens of that country. In other​ words, there is no external debt. If the government were to pay off the entire​ $6 trillion of debt today by the use of​ taxes, which of the following statements is true​? A. Individuals and firms owning more of the debt than their share in taxes needed to pay off the debt have realized an increase in their disposable income. B. Individuals and firms owning less of the debt than their share in taxes needed to pay off the debt have realized a decrease in their disposable income. C. Both of these statements are true. Your answer is correct. D. Neither of these statements is true.

c

In the Classical​ Model, an increase in aggregate demand will result in A. a decrease in both the price level and output. B. an increase in output and no change in the price level. C. an increase in the price level and no change in output. Your answer is correct. D. an increase in both the price level and output. E. a decrease in the price level and an increase in output.

c

Suppose you go shopping for a gift for a friend and also find a sweater that you want for yourself. You pay cash for the gift and write a check for the sweater. Your purchases are made with money holdings represented by A. the asset demand for money because you used money for both purchases. B. your supply of money to the economy. C. the transaction demand for money because you planned to buy the gift and the precautionary demand for money because you did not anticipate buying the sweater. Your answer is correct. D. the transaction demand for money because you paid for the gift with cash.

c

The Modern Keynesian​ short-run aggregate supply curve is best described by which of the following​ statements? A. It is very steep at low levels of real​ GDP; decreases slightly as real GDP​ grows; and becomes horizontal at full employment. B. It is very steep at low levels of real​ GDP; decreases slightly as real GDP​ grows; and becomes very flat as real GDP surpasses full employment. C. It is very flat at low levels of real​ GDP; increases slightly as real GDP​ grows; and becomes very steep as real GDP surpasses full employment. Your answer is correct. D. It is very flat at low levels of real​ GDP; increases slightly as real GDP​ grows; and becomes horizontal at full employment.

c

When there is​ ________ gap, the government would increase spending in an attempt to shift the aggregate demand curve to the​ ________. A. a​ recessionary; left B. an​ inflationary; right C. a​ recessionary; right Your answer is correct. D. an​ inflationary; left

c

According to​ Keynes, when there is excess capacity in an​ economy, the equilibrium level of real GDP per year is determined by A. ​short-run aggregate supply. B. the price level. C. ​long-run aggregate supply. D. aggregate demand.

d

Changes in factors of production that influence economic growth will A. shift LRAS but not SRAS. B. not shift SRAS or LRAS. C. shift SRAS but not LRAS. D. shift SRAS and LRAS.

d

Determine the effect of the following discretionary fiscal policy actions on the aggregate demand curve. ​(i) When there is an increase in government​ spending, aggregate demand shifts to the right. ​(ii) When there is a decrease in​ taxes, aggregate demand shifts to the right. If these shifts occur​ simultaneously, the result will be​ __________ in aggregate demand. A. a crowding out B. a positive increase C. a net increase D. an unambiguous increase

d

How do automatic stabilizersLOADING... ​work? A. When an increase in national income occurs there will be an increase in income tax collections and an increase in unemployment compensation and welfare payments muting the increase in planned expenditures that would have otherwise resulted. B. When a decline in national income occurs there will be an increase in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted. C. When an increase in national income occurs there will be a reduction in income tax collections and a decrease in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted. D. When a decline in national income occurs there will be a reduction in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.

d

If the economy is operating at less than full​ employment, expansionary monetary policy will shift the aggregate demand curve to the​ ________ and the price level will​ ________. A. ​right; decrease B. ​left; increase C. ​left; decrease D. ​right; increase

d

One of the advantages of fiscal policy is that it A. is able to maintain a balanced budget for the government in the long run. B. maintains the economy at full employment. C. is able to work extremely well in spite of the existence of time lags. D. generates a psyche of safety for consumers and investors because they know the government has the ability to use it.

d

Refer to the economy shown in the graph to the right. Suppose that there is an increase in oil prices. The​ short-run effect of this change on the economy is A. a leftward shift of the AD​ curve, and​ demand-pull inflation. B. a rightward shift of the SRAS​ curve, and​ cost-push inflation. C. a rightward shift of the AD​ curve, and​ demand-pull inflation. D. a leftward shift of the SRAS​ curve, and​ cost-push inflation. Your answer is correct. E. ​none; changes in prices have no effect on the economy in the short run.

d

Since 1970 the U.S.​ government's budget deficit as a percentage of real GDP has A. alternated almost every other year from positive to negative. B. been negative in most years. C. hovered around​ 40%. D. averaged approximately​ 3%.

d

Suppose that the rental rate of machinery increased temporarily. The result of this would be best described by A. an increase in both the​ short-run aggregate supply and​ long-run aggregate supply curves. B. an increase in the​ short-run aggregate supply curve only. C. a decrease in both the​ short-run aggregate supply and long run aggregate supply curves. D. a decrease in the​ short-run aggregate supply curve only.

d

The time between recognizing an economic problem and implementing policy to solve it is called the​ ________ time lag. A. effect B. implementation C. recognition D. action

d

The​ Fed's credit policy since 2008 has A. led to an expansion of asymmetric information problems by reducing​ banls' incentive to screen and monitor borrowers. B. provided banks more liquidity. C. given private banks more time to recover from the financial crisis. D. All of the above.

d

The​ Fed's credit policy since 2008 has A. provided banks more liquidity. B. given private banks more time to recover from the financial crisis. C. led to an expansion of asymmetric information problems by reducing​ banls' incentive to screen and monitor borrowers. D. All of the above.

d

To eliminate the deficit​ (and halt the growth of the net public​ debt), a politician suggests that​ "we should tax the​ rich." The politician makes a simple arithmetic calculation in which he applies the higher tax rate to the total income reported by​ "the rich" in a previous year. He says that this is how much the government could receive from increasing taxes on​ "the rich." This argument has been proved wrong because of all the following​ statements, except A. that increasing the marginal tax rate on the​ "rich" has so far produced unimpressive results. B. that the​ "rich" will have more incentive to incorporate themselves and pay a lower corporate profit tax rate. C. that the​ "rich" will use a​ deferred-compensation plan to shift income to future years when their tax rates may be lower. D. that taxing​ "the rich," since they have higher​ earnings, is the answer to solving the problem of a growing deficit.

d

Which of the following is a situation of moral hazard created by the existence of the​ FDIC? A. Financial institutions seeking the protection of the FDIC are able to​ "hide" their poor practices. B. The FDIC regulates banks that do not promote the morals of​ today's society. C. The FDIC seeks to include those financial institutions that practice low risk loans. D. Financial​ institutions, with FDIC​ protection, use​ depositors' funds in riskier investment projects.

d

Which of the following will occur when aggregate supply remains stable but aggregate demand increases in the short​ run? A. The unemployment rate rises. B. The price level falls. C. A recessionary gap is created. D. An inflationary gap is created.

d

Crowding out occurs when A. increases in investment and consumption cause interest rates to​ rise, reducing the ability of the government to borrow funds. B. decreases in government spending cause interest rates to​ rise, reducing investment and consumption. C. increases in taxes cause interest rates to​ rise, reducing investment and consumption. D. increases in government spending cause interest rates to​ fall, reducing investment and consumption. E. increases in government spending cause interest rates to​ rise, reducing investment and consumption.

e