ECO 2013 Macroeconomics Test 3

other things constants, an increase in marginal tax rates will

- decrease the supply of labor and reduce its productivity efficiency -decrease the supply of capital and decrease its productive efficiency -encourage individuals to buy goods that are tax deductible instead of those that are more desired but nondeductible

Expansionary fiscal policy financed by government borrowing can lead to

-higher interest rates and lower private investment under the crowding out view -an increase in aggregate demand under the Keynesian view - no change in aggregate demand under the new classical view

How many federal reserve districts are there in the U.S.

12

suppose a bank receives a new deposit of $500. the bank extends a new loan of $400 because it is required to hold the there $100 on reserve. what is the legal requires reserve ration?

20%

a reserve requirement of 20 percent implies a potential money deposit multiplier of

5

rather than using the purchase and sale of only government bonds in the conduct of open market operations. in 2008 the fed also began buying and selling

Corporate bonds, commercial paper and mortgage backed securities from commercial bans and other financial institutions.

It is legally permitted to use coercive force to modify the actions of adults against their will for?

Governments

Increases in government expenditures and large budget deficits are projected for 2010-2019. THe crowding-out and new classical views indicate this fiscal policy will lead to

Higher interest rates and tax rates that will enhance economic growth

Economic theory leads us to expect that the typical voter will be informed on many issues because

Information is costly, and the individual voter casting a well- informed vote can expect negligible personal benefit

Money is commonly used to pay for goods, services, assets and outstanding debts

Milton Friedman Quote

FALSE STATEMENT

Political activités consistent with economic efficiency tend to emerge naturally front he unconstrained democratic political process

Economics use the term shortsightedness effect to describe which one of the following phenomena?

Politicians tend to support actions that have immediate and easily recognized current benefits.

why might increase in government spending be ineffective during a recession?

Recessions often reflect a coordination problem related to the composition of aggregate demand, not just its level

according the keynesian theory which of the following would most likely stimulate an expansion in reasl output if the economy were in a recession

a budget deficit

Keynesian countercyclical budget policy suggests that

a budget deficit is needed if the economy is operating at less than full employment

the 3 basic functions of money are

a medium of exchange , a store of vale and a unit of account.

the fed increased its asset holdings and the volume of loans to financial institutions during the latter half of 2008, the result was

a vast increase in the monetary base and in the excess reserves of the commercial banking system

if the federal government runs a budget deficit in order to finance an increase in spending. where do the funds to finance the spending come from?

additional bonds issued by the U.S. treasury

a person's marginal tax rate determines the % of

additional earning that the individual is permitted to keep.

when voters pay in proportion to the benefits received from an economic action of the government, if the government activity is productive,

all voters will gain

when economist say that money serves as a unit of account, they mean that money

allows people to value all goods and serves in terms of one commodity ( money) rather than in terms of several commodities

if output is less that full employment in the keynesian model, what is needed to restore full employment?

an increase in aggregate demand

according to the keynesian view if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?

an increase in government expenditures or reduction in taxes, financed by borrowing

which of the following is most likely to lead to an increase in current consumption?

an increase in one's expected future income

which of the following is a predictable side effect of increased government activity ( taxes & subsidies)

an increase in rent-seeking activity

suppose the fed buys $10 million of U.S. securities from the public. Assume a reserve requirement of 5 percent and that all banks hold no excess reserves. the total impact of this action on the money supply will be

an increase of $200 million

the theory of public choice

analyzes the likelihood that various public sector alternatives will be instated & assumes that economic incentives influence the choices of voters & applies the tools of economics to the collective decision - making process

public choice analysis

assumes individuals in the public sector act in their own self-interest

the federal funds rate is the interest rate

banks pay when they borrow money from each other for short periods of time

if a fiscal policy change is going to exert a stabilizing impact on the economy, it must

be timed correctly

which is true about the market and public sectors?

competitive behavior is present in both sectors.

government decisions tend to be biased toward actions that have

current benefits that are easily observable and future costs that are difficult to identify.

if the federal reserve wanted to expand the suppy of money to head off a recession it could

decrease the reserve requirement

public choice theory suggests that politicians will be most likely to favor redistribution of income from

disorganized individuals to well-organized special interest groups.

in the Keynesian model, the primary determinant of consumers pending is

disposable income

the expenditure multiplier is used to calculate the change in

equilibrium income resulting from an independent change in spending

the difference between the total reserves that a bank holds and the amount that is required by law is called

excess reserves

in the united states, the control of the money supply is the responsibility of the

federal reserve system ( the FED)

the nature and measurement of the money supply has become more difficult in recent years because of

financial innovations, such as the introduction of interest-earning checking accounts and money market mutual funds.

is an example of a good that is produced by the public sector but consumers purchase it in promotion to the benefit received?

first - class mail delivery from the U.S. post office

with of the following is a major insight of the Keynesian Model

fluctuations in aggregate demand are an important potential sure of business instability.

when the federal government is running a budget surplus,

government revenues exceed government expenditures

giving local governments more power is less dangerous than giving the same power to the national government because

higher exit options exist at the local level - it is easier for people to move away from a bad government

Keynesian critics would argue that expansion in government debt during a recession would lead to

higher future interest payments and tax rates

which of the following correctly indicates how the fed could use the interest rate it pays commercial banks on their excess reserves to influence the money supply

if the fed wanted to decrease the money supply it could increase the interest rate paid on excess reserves

john maynard keynes and his followers argues that the great depression was primarily the result of

insufficient aggregate spending on goods and services

the value ( purchasing power) of each unit of money

is inversely related to prices( money's value falls as prices rise and vise versa)

at the most basic level, the distinguishing characteristic of government that makes it afferent from private firms is

its ability to use coercive force against people to modify their behavior or force them to pay for a good or service whether they benefit from it or not.

when the economy enters a recession, automatic stabilizers create

larger budget surpluses

which of the following refers to when legislators trade votes on legislation?

logrolling

Flat money is defined as

money that has little intrinsic value' it is neither backed by nor convertible to a commodity of value

Assume that you are a member of the house of representatives from your home state and district. Which best explains why you have a strong incentive to get the federal government to finance pork-barre projects in the future.

most of the benefits of pork barrel projects within your district will accrue to your constituents whereas most of the costs will be imposed on overs from other districts

the tool dusted most frequently by the FED to control the money supply is

open market operations

which of the following will make it difficult to institute fiscal policy in a stabilizing manner?

politicians will find budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during and expansion.

automatic stabilizers are government programs that tend to

reduce the ups and downs in aggregate demand without legislative action.

when analyzing public sector decision making economic theory assumes that voters, politicians and governmental officials will

respond to changes in personal benefits and costs when making public sector choices

if the fed wants to use "open market operations" to decreases the money supply it would

sell U.S. government securities ( bonds) to the general public

Legislation that offers immediate and easily recognized benefits at the expense of costs that are observable only in the distant future, is often enacted even when economic inefficiency results in economics this is referred to as the

shortsightedness effect

the larger the reserve requirement, the

smaller the potential deposit multiplier

the modern consenus view of final policy stresses

that offsetting factors make fiscal policy much less effective than the Keynesian view suggested and that proper timing of fiscal policy is very difficult to achieve, rendering fiscal policy less useful as a stabilization tool.

other things constant, a reduction in marginal tax rates will tend to increase aggregate supply because the lower taxes will increase

the attractiveness of productive activity relative to leisure and tax avoidance

the total expansion in the money supply can be less than is predicted by the deposit expansion multiplier if

the banks choose to hold some excess reserves rather than lending all excess reserves and some individuals prefer to hold cash instead of depositing their money in banks.

the crowding out effect suggests that

the demand stimulus effects of a budget deficit will be weak because the borrowing to finance the deficit will lead to higher interest rates

which of the following is the best explanation of how expansionary fiscal policy can crowd out net exports?

the higher interest rates associated with expansionary fiscal policy attract foreign investors. to buy U.S. financial assets, foreigners bid up the real exchange rate which in turn causes net exports to falls

suppose the FED sells $100 million of US government securities (bonds) to the public

the money supply will be unaffected; the national debt will increase

the keynesian macron economic model was highly popular for several decades following world war 2 because it provided an explanation fro

the prolonged unemployment of the 1930's

which of the following statements is true?

the supply- side effects of changes in marginal tax rates that takes place over lengthy time periods

which of the following is a potential drawback of an expansion of government spending projects during a recession?

those benefiting from spending projects will lobby for a continuation of these projects long after the economy has recovered

public choice analysis indicates that

unconstrained democratic governments often enact special interest programs that waste resources and impair the standards of living

in which case is the political process most likely to result in the acceptance of productive programs and rejection of unproductive political activites

when both the benefits and costs are widespread among voters

WHen is representative democracy most likely to lead to the adoption of a inefficient governmental program?

when the program provides substantial benefits to a small proportion of the voters and the costs are widespread amount voters

Government activities under a system of representative democracy

when voters pay in proportion to benefits received all voters will gain if the government activity is productive.

according to the Keynesian view, expansionary fiscal policy will have its greatest impact

when widespread unemployment is present

public choice theory indicates that competitive forces between candidates in elections provide a pelican with a strong incentive to offer voters a bundle of polical goods that she believes

will increase her changes of winning elections