Econ Final Test 2

Expansionary fiscal policy: A) decreases aggregate demand B) increases aggregate demand C) increases long-run aggregate supply D) decreases long-run aggregate supply

B

When a corporation borrows money from lenders in exchange for a fixed interest rate and a given maturity, the corporation is: A) liquidating a bank deposit B) taking out a loan C) issuing bonds D) issuing stocks

B

The 45-degree line in the Keynesian model represents a set of points where ______ equals _______ A) disposable income; consumption B) disposable income; saving C) saving; consumption D) saving; investment

A

(Inside Job) What is NOT mentioned as a cause of the 2008 financial crisis? A) A violent uprising in Iceland after unprecedented volcanic eruptions B) Lax regulation of banks b/c many regulators were ex-bankers C) The expansion of complex derivatives D) A risk-loving (and drug-loving) culture on Wall Street E) A failure of ratings agencies to adequately access a risk

A

An increase in gov spending on health care is likely to shift the: A) Aggregate demand curve to the right B) Aggregate demand curve to the left C) Short-run aggregate supply curve to the left D) Short-run aggregate supply curve to the right

A

As a result of the crowding-out effect, interest rates _____ and private sector borrowing ______. A) increase; decreases B) increase; increases C) decrease; increases D) decrease; decreases

A

Because of the wealth effect, a rising aggregate price level ____ the purchasing power of wealth and therefore ____ output demanded. A) reduces; reduces B) increases; reduces C) reduces; increases D) increases; increases

A

Financial intermediaries match: A) borrowers with savers B) banks with lenders C) savers with lenders D) banks with savers

A

If AE= $7600 and Y= $8000, businesses will produce: A) less, lowering both employment and income B) more, raising both employment and income C) more, raising employment and lowering income D) less, lowering employment and raising income

A

If a pill is discovered that allows people to work twice as fast as they would ordinarily work, then the aggregate supply curve will: A) Shift to the right B) Become vertical C) Shift to the left D) Not change

A

If the marginal propensity to consume is 0.6, then the spending multiplier is: A) 2.5 B) 6 C) 2 D) 4

A

Inflation can be measured by: A) The percent change in the CPI B) The percentage change in GDP C) the absolute change in the GDP deflator D) the absolute change in the CPI

A

John Maynard Keyes focused on _____ to explain how the economy reaches short-term equilibrium employment, output, and income. A) aggregate spending B) property rights C) the investment rate D) investment

A

One characteristic of an annually balanced federal budget is that: A) It makes it impossible for the government to engage in countercyclical activity B) It incorporates automatic stabilizers C) Government spending and tax revenues move in opposite directions D) It was advocated by John Maynard Keynes

A

Suppose energy prices spike. In the short run, output will _____; in the long run, output will ______ from its starting point. A) decrease; remain unchanged B) remain unchanged; increase C) remain unchanged; decrease D) decrease; increase

A

Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects that inflation over the course of the loan will be roughly 3%. Which of the following is TRUE? A) If the bank charges 8% and the inflation rate is less than 3% then the bank will have earned a larger rate of return than expected B) If the bank charges 8% and the inflation rate is more than 3%, then the bank will have earned a larger rate of return than expected C) If the bank charges an interest rate of 8% or higher, this will guarantee it to earn the expected return D) As long as the bank charges a nominal interest rate of at least 5%, it will earn its expected returns

A

Suppose that in a particular month roughly 8 million people in the US were seeking jobs but had not found them, as in the previous month. Suppose that 2 million of these people gave up their searches in the current month and stopped looking for work. What will happen to the unemployment rate, all other things unchanged? A) It will fall B) It will rise C) It will be unaffected, because none of these people are working D) Not enough info provided to determine

A

The Potbelly Pothole company is undertaking some investment in its plant. Suppose interest rates fall and new technologies increase the return on its investments. What is likely to happen? A) The company's demand for investment will rise B) The company's demand for investment will first fall as interest rates fall and then rise as technology improves C) The company's demand for investment will fall D) There will be no change in the company's investment

A

The current level of real GDP lies below potential GDP. An appropriate fiscal policy would be to _____, which will shift the _____ curve to the ______. A) increase gov purchases; AD; right B) increase tax rates; AD; right C) increase gov purchases; AD; left D) increase transfer payments; AS; right

A

The paradox of thrift suggests that when households intend to save more, they will _______ consumption, which will ultimately lead to _________ actual aggregate saving. A) reduce; lower B) reduce; higher C) increase; higher D) increase; lower

A

What would cause the price level to decrease and employment to increase? A) A shift to the right of the SRAS curve B) A shift to the left of the AD curve C) A shift to the right of the AD curve D) A shift to the left of the SRAS curve

A

Which one of the following will cause the demand for loanable funds curve to shift leftward? A) an end to s program that provides investment tax credits B) An increase in demand for new homes C) An improvement in firms' expectations about the economy D) an increase in the government deficit

A

A survey reveals that on a small island 40 people have jobs, 10 people are looking for jobs, and 30 people are neither working nor looking for work. The unemployment rate on the island is: A) 25% B) 20% C)12.5% D) 50%

B

Among people counted as unemployed by the gov are: A) workers who are underemployed B) people without a job who are actively seeking a job C) people without a job who are actively seeking a job, discouraged workers, and workers who are underemployed D) discouraged workers

B

If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural unemployment rate is A) 9% B) 5% C) 7% D) 2%

B

If the economy is currently in a recessionary gap (a recession) , real GDP will be ____ potential output. A) in equilibrium with B) the same as C) above D) below

B

If the marginal propensity to consume is 0.9, by how much will $100 of government spending increase GDP? A) $900 B) $90 C) $100 D) $1000

B

Inflation is when there is: A) A rise in the unemployment rate B) A rising aggregate price level C) An expansion of output D) A rise in wages

B

Last month Brent lost his job at the autoparts factory because his factory, like many others, relocated to Asia. Brent has been looking for similar factory jobs in his town, but has found no openings. Brent is best classified as: A) A discouraged worker B) Structurally unemployed C) Out of the labor force D) Frictionally unemployed

B

Rising inventories usually indicate: A) an unexpected spurt in sales B) an unexpectedly slowing economy C) an unexpectedly growing economy D) an inflationary cycle

B

The $787 billion stimulus package in the United States in 2009 focused more on spending than on taxes partly because A) The government tax multiplier is more than the government spending multiplier B) Increased spending leads to a larger increase in GDP than the same reduction in taxes C) The government revenue multiplier is about the same as the government tax multiplier D) Increased spending leads to a smaller increase in GDP than the same reduction in taxes

B

What approach to federal finance would you agree with if you wanted the federal government to restrict spending or raise taxes during booms and use surpluses from the booms to offset deficits during recessions? A) annually balanced budget B) cyclically balanced budget C) trade balanced budget D) functional finance

B

______ will most likely increase the economy's long-run aggregate supply. A) Unfavorable weather in the corn belt B) Advances in technology C) An increase in the expected inflation rate D) A low rate of investment

B

Changes in short-run aggregate supply can be caused by changes in: A) Wealth B) Consumption spending C) Wages D) Government Spending

C

Cyclical unemployment is characterized as: A) A situation when there are not good matches between available jobs and the skills people have B) The normal unemployment around which the actual unemployment rate fluctuates C) The deviation in the actual rate of unemployment away from the natural rate D) Unemployment that occurs when people are between jobs

C

If the interest rate increases, investment will: A) not be affected B) increase C) decrease D) fall to zero

C

Most recessions originate from: A) an increase in aggregate supply B) a decrease in aggregate supply C) a decrease in aggregate demand D) an increase in aggregate demand

C

Simultaneous recession and deflation can be explained by: A) a rise in aggregate demand B) an increase in aggregate supply C) a drop in aggregate demand D) a decrease in aggregate supply

C

Suppose a booming stock market encourages consumption spending to rise dramatically. What would be the most likely short-run impact? A) recession and rising prices B) recession and falling prices C) inflation and rising GDP D) the impact cannot be determined from the information given

C

Suppose the aggregate output level is lower than the potential output. Which of the following is NOT true? A) Nominal wages will fall over time B) Workers are abundant C) The short-run aggregate supply curve will gradually shift to the left D) Jobs are scarce

C

The Great Depression demonstrated that: A) There can be no macroeconomic equilibrium B) Inflation is a worse problem than unemployment C) Short-run equilibrium can occur at substantially less than full employment D) Government intervention in the economy results in economic depressions

C

The SRAS curve is upward rising because A) a lower aggregate price level leads to higher output since production costs tend to fall in the short run B) a lower aggregate price level leads to higher profit and higher productivity C) a higher aggregate price level leads to higher output since most production costs are fixed in the short run D) a higher aggregate price level leads to lower output as costs of production increase

C

The ______ is the sum of past _______ A) budget deficit; national debts B) public debt; national debt C) public debt; budget deficits D) budget deficit; public debts

C

The demand for loanable funds is downward-sloping because: A) higher interest rates are equivalent to higher returns on business projects B) higher interest rates encourage firms to borrow more C) as interest rates fall, businesses find more projects to be profitable and thus want to borrow more D) as interest rates drop, the value of money supply drops

C

What is a credit default swipe? A) a company which assigns credit ratings (risk assessment) for firms, and were often paid by those firms B) an investment that is backed by real estate and other assets C) an insurance contract in which the buyer pays the seller to protect her against losses D) a high-risk and high interest rate loan

C

What is a credit ratings agency? A) a company which assigns credit ratings (risk assessment) for firms, and were often paid by those firms B) an investment that is backed by real estate and other assets C) an insurance contract in which the buyer pays the seller to protect her against losses D) a high-risk and high interest rate loan

C

What is a subprime loan? A) A company which assigns credit ratings (risk assessment) for firms, and were often paid by those firms B) An investment that is backed by real estates and other assets C) An insurance contract in which the buyer pays the seller to protect her against losses D) A high-risk and high-interest rate loan

C

When a recent college graduate with a majojr in Economics attends a job fair, it is an example of a: A) cyclically unemployed worker B) structurally unemployed worker C) frictionally unemployed worker D) seasonally unemployed worker

C

Which is NOT a primary role of financial intermediaries in the market for funds? A) reducing information costs B) spreading risk C) collecting taxes on financial transactions D) reducing transaction costs

C

______ involves increasing government spending, increasing transfer payments, and/or decreasing taxes A) Contractionary fiscal policy B) Contracionary Monetary Policy C) Expansionary fiscal policy D) Expansionary monetary policy

C

An expansionary fiscal policy either _______ government spending or _____ taxes A) decreases; decreases B) increases; increases C) decreases; increases D) increases; decreases

D

An increase in the price of imported oil leads to a: A) negative demand shock B) positive demand shock C) positive supply shock D) negative supply shock

D

Assume the MPC is 0.75. Full employment is considered to be at a GDP level of $500 billion. The GDP is $600 billion. What should the government do to achieve full employment? A) increase spending by $25 billion B) increase spending by $10 billion C) reduce spending by $100 billion D) reduce spending by $25 billion

D

Automatic stabilizers are: A) aspects of the tax code that stabilize tax revenue over the course of a business cycle B) policies intended to stabilize the price level C) laws passed by Congress that stabilize interest rates D) components of the federal budget that counter the effects of the business cycle without explicit intervention by the president or Congress

D

Increasing taxes to fight inflation is an example of: A) conservative fiscal policy B) demand-braking policy C) expansionary fiscal policy D) contractionary fiscal policy

D

Liquidity refers to A) how fast money travels through the economy B) how easily cash can be transported across national borders C) how fast money can be transferred from one account to another account D) how quickly, easily, and reliably an asset can be converted into a medium of exchange

D

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the U.S is a nation of spenders with a marginal propensity to consume of 0.9. Which of the following statements is correct? A) The U.S economy tends to overheat from too much spending B) A small increase in spending will have a powerful effect in starting a recovery in the U.S than Japan C) The Japanese economy is not in equilibrium D) The Japanese economy is more susceptible to a recessiom caused ny a drop in spending

D

The level of output in the long run is known as: A) structural output B) balanced budget output C) recognized output D) potential output

D

The notion of functional finance states that: A) the government's budget should always be balanced over the course of the business cycle B) the government should function as a financial leader in the economy C) the economic function of the president is to maintain a balanced budget D) the government should not focus on any deficits or surpluses caused by the budget and focus on maintaining the economy at full employment

D

When the economy is underperforming and policymakers pursue expansionary fiscal policy, they express willingness to trade off _____ output for a _______ price level A) lower; higher B) lower; lower C) higher; lower D) higher; higher

D

One of the lags associated with fiscal policy is the time it takes to recognize that the economy has developed a recessionary or inflationary gap. True False

True