ECON MACRO #3, MACRO ECON #4, Econ Chapter 20

Refer to the given table. The value of the dollar in year 2 is

$0.80.

Refer to the given table. The value of the dollar in year 3 is

$1.25.

The table contains budget information for a hypothetical economy. All data are in billions of dollars. Assume that Year 1 is the first year for this economy and Year 5 is the current year. What is the public debt in this economy at Year 5?

$125 billion

Refer to the table. Money supply M1 for this economy is

$130.

The figure above shows the U.S. market for T-shirts, where $ us is the domestic supply curve and D us is the domestic demand curve. The world price of a T-shirt is $5. The U.S. government imposes a $2 per unit tariff on imported T-shirts. The figure above shows that the government revenue from the tariff is

$20 million per year

Country A imports 1,000 cars per month. After imposing a $50 per car tariff, imports fall to 800 cars per month. How much does Country A's government collect in tariff revenue?

$40,000

Based on the given table, at equilibrium in the given market for money, the total amount of money demanded is

$460

Refer to the table. Money supply M2 for this economy is

$480.

Suppose the world price of widgets is $5 each, if a widget-importing country imposed a $2 per widget tariff, what price would that country's consumers pay for widgets?

$7

The figure above shows that the U.S. market for airplanes, where $ us is the domestic supply and D us is the domestic demand curve. The United States trades freely with the rest of the world. The world price of an airplane is $150 million. In the figure above, U.S. consumers buy___________airplanes per year at__________million per airplane

200;$150

If nominal GDP is $300 and the supply of money is $230, the equilibrium interest rate will be

4 percent

According to the Taylor rule, when real GDP is equal to potential GDP and the inflation rate is equal to its target rate of 2 percent, the Federal funds rate should be

4 percent, and this implies a real interest rate of 2 percent.

The monetary multiplier for the commercial banking system is

5

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The public debt declined in year

6.

The figure above shows the U.S. market for T-shirts, where $ us is the domestic supply curve and D us is the domestic demand curve. The United States trades freely with the rest of the world. The world price of a T-shirt is $5. In the figure above, with international trade U.S. consumers buy_________million T-shirts per year at_______per T-shirt.

60;$5

Based on the given table, the equilibrium interest rate is

8 percent

Refer to the diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD0.

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD3.

Refer to the given market-for-money diagrams. The asset demand for money is shown by

D 2.

Paper money (currency) in the United States is issued by the

Federal Reserve Banks.

A $20 bill is a

Federal Reserve note.

Refer to the diagram of the market for money. The equilibrium interest rate is

I2.

Which of the following statements is correct?

Interest rates and bond prices vary inversely.

The given curve is known as the

Laffer Curve

Refer to the graph. Assume that the economy is in a recession with a price level of P 1 and output level Q 1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?

P 2 and Q 2

The inflation and unemployment data for the 1970s suggest that the aggregate-supply shocks of that period caused the

Phillips Curve to shift to the right.

Refer to the diagram for a specific economy. The curve on this graph is known as a

Phillips curve

Which of the following statements about quantitative easing (or "QE") and open-market purchase is true?

QE is different from open-market purchase in that QE involves not just T-bonds but also bonds issued by other government agencies and government-backed corporations.

Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD 2 and that the full-employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD 2 to AD 1, what will be the effect on real GDP and the price level?

Real GDP will fall to X and the price level will remain unchanged, assuming a ratchet effect occurs.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Refer to the diagram for a specific economy. Which of the following best describes the relationship shown by this curve?

The rate of inflation and the rate of unemployment are inversely related.

Which of the following is a true statement?

There is no trade-off between inflation and unemployment in the long run.

Which of the following is a true statement?

Under normal conditions, there is a short-run trade-off between inflation and unemployment.

Which of the following represents the most expansionary fiscal policy?

a $10 billion increase in government spending

The fundamental objective of monetary policy is to assist the economy in achieving

a full-employment, noninflationary level of total output.

One of the major reasons why the United States exports jet airplanes is because Boeing faces__________opportunity costs than firms in other nations in the production of such aircraft

a lower

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

a medium of exchange.

Refer to the diagram. The initial aggregate demand curve is AD 1, and the initial aggregate supply curve is AS 1. In the long run, demand-pull inflation is best shown as

a shift of aggregate demand from AD1 to AD2, followed by a shift of aggregate supply from AS1 to AS2.

Money functions as

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

A tariff is

a tax imposed on imports

An appropriate fiscal policy for severe demand-pull inflation is

a tax rate increase.

If you are estimating your total expenses for school next semester, you are using money primarily as

a unit of account.

What are "mortgage-backed securities"?

bonds backed by mortgage payments

Currency in circulation is part of

both M1 and M2.

Of the following, who is harmed by a tariff?

both answers A and B are correct

Refer to the graphs. Growth of production capacity is shown by

both the shift from AB to CD and the shift from X to Y.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

budget surplus.

The natural rate of unemployment

can vary over time and defines the location of the long-run aggregate supply curve.

Other things equal, a decrease in the price level will

cause a movement down an aggregate supply curve.

In the United States, the money supply (M1) includes

coins, paper currency, and checkable deposits.

Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n)

contractionary fiscal policy.

Economists refer to a budget deficit that exists when the economy is achieving full employment as a

cyclically adjusted deficit.

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ________ investment spending.

decrease; increase

If the United States imports purses, then the quantity of purses produced in the United States will_________and the quantity of purses purchased consumers in the United States will_____

decrease;increase

The figure above shows the U.S. market for T-shirts, where $ us is the domestic supply curve, and D us is the domestic demand curve. The United States trades freely with the rest of the world. The world price of a T-shirt is $5. Based on the figure above, as a result of international trade, U.S. domestic production______million T-shirts per year.

decreases by 20

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by

decreasing taxes by $25 billion.

Fiscal policy refers to the

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Comparative advantage is based on

differences in opportunity costs between two countries

What is the infant industry argument for protection from international trade?

domestic firms must be protected until they gain a comparative advantage

When a tariff supporter argues that foreign producers are selling their products for prices below the costs of production, which of the following is being used?

dumping argument

Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply

expands and commercial bank reserves increase.

Goods and services that the United States sells to other nations are called

exports

The figure above shows that the U.S. market for airplanes, where $ us is the domestic supply and D us is the domestic demand curve. The United States trades freely with the rest of the world. The world price of an airplane is $150 million. In the figure above, the United States___________airplanes per year

exports 500

If the United States starts to import a good that had previously been produced in the United States, the market price of the good in the United States

falls

The interest rate that banks charge one another on overnight loans is called the

federal funds rate.

The crowding-out effect of expansionary fiscal policy suggests that

government spending increases at the expense of private investment.

The more progressive the tax system, the

greater is the built-in stability for the economy.

Most t-shirts bought by Americans are made in Asia. As a result of free trade, the production of t-shirts in America

has decreased

"Subprime mortgage loans" refer to

high-interest-rate loans to home buyers with above-average credit risk.

Goods and services that the United States buys from other nations are called

imports

The figure above shows the U.S. market for T-shirts, where $ us is the domestic supply curve and D us is the domestic demand curve. The United States trades freely with the rest of the world. The world price of a T-shirt is $5. In the figure above, with international trade the United States________million T-shirts per year

imports 40

The figure above shows the U.S. market for T-shirts, where $ us is the domestic supply curve and D us is the domestic demand curve. The world price of a T-shirt is $5. The U.S. government imposes a $2 per unit tariff on imported T-shirts. The figure above shows that as a result of the tariff, the quantity of T-shirts produced in the United States____________and the quantity of T-shirts imported________

increases by 15 million per year;decreases by 30 million per year

The figure above shows that the U.S. market for airplanes, where $ us is the domestic supply and D us is the domestic demand curve. The United States trades freely with the rest of the world. The world price of an airplane is $150 million. Based on the figure above, as a result of international trade, U.S. domestic production___________airplanes per year

increases by 300

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

increasing government spending by $4 billion.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

increasing taxes by $20 billion.

During the 1980s, Harley-Davidson the American motorcycle maker asked congress for tariff protection from large motorcycles imported from Japan. Harley-Davidson argued that their company needed protection so the company could reorganize and, after some time had passed, could become more competitive. Harley-Davidson's argument is similar to the_______argument for protection

infant-industry

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

The purchasing power of money and the price level vary

inversely.

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

Expansionary fiscal policy is so named because it

is designed to expand real GDP.

The accompanying table is the before-tax consumption schedule for a closed economy. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the tax system

is regressive.

Which of the following is not part of the M2 money supply?

large-denominated time deposits

Refer to the diagram. The initial aggregate demand curve is AD 1 and the initial aggregate supply curve is AS 1. Cost-push inflation in the short run is best represented as a

leftward shift of the aggregate supply curve from AS 1 to AS 2.

In terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the

long run

In the extended aggregate demand-aggregate supply model,

long-run equilibrium occurs at the intersection of the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.

The transactions demand for money is most closely related to money functioning as a

medium of exchange.

Refer to the diagram. Assume that the natural rate of unemployment is 5 percent and that the economy is initially operating at point c, where the expected and actual rates of inflation are each 4 percent. If the actual rate of inflation unexpectedly rises from 4 percent to 6 percent, the economy will

move from c to d and eventually to a.

In the 1950s. crude oil and natural gas imports were restricted to keep the domestic industries viable in case of a war. The rationale for this protection is the________argument for protection

national security

If supporters of restrictions on imports argue that protection is needed to reserve a strategic industry, which of the following is being used?

national security argument

In terms of aggregate supply, the difference between the long run and the short run is that in the long run,

nominal wages and other input prices are fully responsive to price-level changes.

In terms of aggregate supply, the short run is a period in which

nominal wages and other resource prices are unresponsive to price-level changes.

Which of the following is true? i. Comparative advantage drives international trade ii. Compared to a non-trade situation, imports make domestic producers better off iii. Tariffs lower the domestic price of imported goods

only i

Refer to the diagrams. The numbers in parentheses after the AD 1, AD 2, and AD 3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from MS 1 to MS 3?

purchases of U.S. securities by the Fed in the open market

A specified maximum amount of the good that may be imported in a given period of time is a

quota

If Indonesia imposes an import tariff on Hollywood movies, the tariff________the price of seeing a movie in Indonesia, the production of movies in Indonesia_______and imports of Hollywood movies into Indonesia______

raises;increases;falls

The purpose of an expansionary monetary policy is to increase

real GDP.

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should

reduce taxes by $80 billion.

A major advantage of the built-in or automatic stabilizers is that they

require no legislative action by Congress to be made effective.

Refer to the diagram. The initial aggregate demand curve is AD 1, and the initial aggregate supply curve is AS 1. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a

rightward shift of the aggregate supply curve from AS 2 to AS 1.

Imposing a tariff on a good leads to a ______in the price of the product and________in imports

rise;a decrease

The figure above shows the U.S. market for T-shirts, where $ us is the domestic supply curve and D us is the domestic demand curve. The world price of a T-shirt is $5. The U.S. government imposes a $2 per unit tariff on imported T-shirts. The figure above shows that as a result of the tariff, the price of a T-shirt in the United States____________and the quantity of T-shirts bought_________

rises by 2;decreases by 15 million per year

When an import quota is imposed on tomatoes, the price of tomatoes__________and the quantity bought__________so domestic consumers_______

rises;decreases;lose

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

shift the AD curve to the left.

In terms of aggregate supply, a period in which nominal wages and other resource prices are unresponsive to price-level changes is called the

short run

The traditional Phillips Curve showing a trade-off between inflation and unemployment is based on having a stable

short-run aggregate supply and a shifting aggregate demand.

Inflation accompanied by falling real output and employment is known as

stagflation

If you place a part of your summer earnings in a savings account, you are using money primarily as a

store of value.

The asset demand for money is most closely related to money functioning as a

store of value.

The Laffer Curve is a central concept in

supply-side economics

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy,

tax revenues vary directly with GDP, but government spending is independent of GDP

When the economy is at full employment,

the actual and the cyclically adjusted budgets will be equal.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400,

the budget will be balanced.

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

the cyclically adjusted budget has a surplus.

The four main tools of monetary policy are

the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.

The purchase of government securities from the public by the Fed will cause

the money supply to increase.

The level of potential output and location of the long-run aggregate supply curve are determined by

the natural rate of unemployment.

Open-market operations refer to

the purchase or sale of government securities, as well as collateralized money loans, by the Fed.

A rightward shift of the traditional Phillips Curve would suggest that

the rate of inflation is now higher at each rate of unemployment.

To say that coins are "token money" means that

their face value is greater than their intrinsic value.

Checkable deposits are classified as money because

they can be readily used in purchasing goods and paying debts.

Refer to the diagram. Point b on short-run Phillips Curve PC 1 represents a rate of

unemployment below the natural rate.

In the extended analysis of aggregate supply, the short-run aggregate supply curve is

upsloping and the long-run aggregate supply curve is vertical.

If the price index rises from 200 to 250, the purchasing power value of the dollar

will fall by 20 percent.

Refer to the diagram and assume the economy is operating at equilibrium point w. In the short run, an increase in the price level from P 2 to P 3 would move the economy from point w to point

x

The commercial banking system has excess reserves of

zero

Refer to the diagram. The move of the economy from c to e on short-run Phillips Curve PC 2 would be explained by an

actual rate of inflation that is less than the expected rate.

Refer to the diagram. Point b would be explained by

an actual rate of inflation that exceeds the expected rate.

In the diagram,

any rate of inflation is consistent with the natural rate of unemployment in the long run.

Small-denominated time deposits, by definition

are less than $100,000.