Macro 10,11,12,13,14,15,18

There is substantial evidence that people base their consumption decisions more on their current income than on the average income they expect to receive over a long period of time. ( T/f)

False

According to the equation of exchange, M V = P C. a. True b. False

False equation of exchange : MV = PQ money supply * velocity of money = Price level * quantity of goods and services

Banks create new deposits by a. lending out excess reserves b. lending out required reserves c. raising interest rates on loans d. calling in loans e. printing new checks

a. lending out excess reserves

According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money a. must be 6 b. must be 1/6 c. must be 6 trillion d. must be 1/6 trillion e. cannot be determined unless we know the price level

a. must be 6

When federal government net revenue increases and its purchases decrease, a. the price level tends to fall b. the money supply must rise c. the aggregate demand curve shifts rightward d. aggregate supply moves rightward e. there is a federal budget deficit

a. price level tends to fall

Given the demand for money in Exhibit 30-2, if the supply of money is given by the supply curve labelled S, the equilibrium interest rate and quantity of money would be a. r and m b. r* and m* c. r' and m' d. r and m' e. cannot tell from the information given

a. r and m

Suppose that a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2. If the bank wishes to hold no excess reserves, its actual reserves will be a. $4,000 b. $1,200 c. $3,000 d. less than $1,000 e. $4,800

b. $1,200

Increased government borrowing to cover a budget deficit causes a. a higher interest rate and depreciation of the U.S. dollar b. a higher interest rate and appreciation of the U.S. dollar c. a lower interest rate and depreciation of the U.S. dollar d. a lower interest rate and appreciation of the U.S. dollar e. no change in the interest rate and depreciation of the U.S. dollar

b. a higher interest rate and appreciation of the U.S dollar

The equation of exchange is a. quantity supplied equals quantity demanded b. quantity bought equals quantity sold c. M V = P Y d. C I + G = Y e. input equals output

c, MV = PY

Refer to Exhibit 14-1. If Eubank is holding no excess reserves, what must the required reserve ratio be? a. 5 percent b. 4 percent c. 10 percent d. 20 percent e. 2 percent

c. 10 percent

When the MPC is.75 a decrease in net taxes of 100 billion will increase the equilibrium lvel of real GDP by a. $75 billion b. $100 billion c. $300 billion d. $400 billion e. $500 billion

c. 300 billion increase disposible income by 100, thus mpc is.75 . consumption increases by 75 billion the multiplier is 1/1-mpc so 4 * 75 is 300 billion

The entire U.S. federal budget process, beginning with delivery of the President's budget to Congress and ending with the beginning of the fiscal year, takes about a. one month b. six months c. nine months d. one year e. three months

c. 9 months

Refer to Exhibit 14-1. Assume the required reserve ratio is 10%. If Stu Dent deposits $10,000 in cash into his checkable deposit account, how much will Eubank have in excess reserves? a. $10,000 b. $1,000 c. $9,000 d. $60,000 e. $6,000

c. 9,000

Which of the following has been advanced as a legitimate reason for federal budget deficits? a. Both c and d are legitimate reasons for government budget deficits. b. All of the following. c. Deficits help reduce the size and duration of recessions through the automatic stabilizers. d. Deficits have been used to finance capital projects. e. If the government had to fund all of its programs with tax revenues, the programs wouldn't get funded.

A. C/D deficits help reduce the size and duration of recessions through the automatic stabilizers deficits have been used to finance capital projects

A contractionary gap exists when aggregate demand is insufficient to sustain real output at the economy's potential output level. ( T/F)

A. True

A decrease in government purchases can close an expansionary gap by shifting the aggregate demand curve. (t/F)

A. True

The reason that the USA is a net debtor nation is that it has run current account deficits on its balance of payments. A True B False

A. True

The main effect of an increase in the capital stock is a(n) a. rightward shift of the long - run aggregate supply curve b. rightward shift of the aggregate demand curve c. leftward shit of the long - run aggregate supply curve d. leftward shift of the aggregate demand curve.

A. rightward shift of the long - run aggregate supply curve

Fiscal policy a. uses the federal government's powers of spending and taxation to affect employment, the price level, and GDP b. uses the federal government's powers over the money supply and interest rates to affect employment, the price level, and GDP c. can affect employment and prices, but not the level of GDP d. can affect employment and the level of GDP, but not the price level e. is most effective when employed by state governments rather than by the federal government

A. uses the federal government's power of spending and taxation to affect employment , the price level, and GDP.

The difference between the Gross national debt and the publicly held debt is that the publicly held debt nincludes tha tpart of the national debt held by federal agencies ( T/F)

False

John Maynard Keynes is best known for advocating a. a policy of annually balancing the budget b. deficit spending by the federal government during recessions c. the fixed-growth-rate monetary rule d. adoption of the biennial budget process e. an active monetary policy to prevent inflation

B. deficit spending by the Federal government during recessions

What happens in the economy illustrated in Exhibit 12-2 if government purchases increase by the amount necessary to achieve full employment? a. The AD curve shifts to the right, the SRAS curve shifts to the left, and long-run equilibrium is achieved. b. The AD curve shifts to the right, the price level increases, and long-run equilibrium is achieved. c. The AD curve shifts to the right the price level increases, and the expansionary gap worsens

B. the Ad curve shifts to the right, the price level increase, and long run equilibrium is achieved.

If the economy pictured in Exhibit 30-5 is in equilibrium where AD = SRAS, then it a. is experiencing a contractionary gap b. will experience an increase in the price level if no government action is taken c. is operating at the potential level of output d. will experience a stable price level if no government action is taken e. is operating at less than the economy's potential level of outpu

B. will experience an increase in the price level if no government action is taken.

In order for the government to increase spending, it must increase taxes to finance that spending. a. True b. False

B.false

. Refer to Exhibit 14-2. What kind of transaction just took place at Countybank? a. A customer withdrew $1,000 from her checking account. b. A customer deposited a $1,000 check in her savings account. c. A customer deposited $1,000 in her checking account. d. The bank purchased a security with $1,000 cash. e. The bank borrowed $1,000 from the Federal Reserve

C. A customer deposited 1000 in her checking account

On a bank's balance sheet, a. deposits and loans are assets b. deposits and loans are liabilities c. deposits are liabilities; loans are assets d. deposits are assets; loans are liabilities e. deposits and loans are not listed

C. Deposits are liabilities; loans are assets

Which of the following is a liability for a bank? a. U.S. government securities b. deposits with the Fed c. checkable deposits d. consumer and business loans e. building and furniture

C. checkable deposits

Discretionary fiscal policy is policy that a. works automatically without public announcement or plan b. is developed in secret c. is an intentional change in taxation or government spending d. applies to some states but not others

C. is an intentional change in taxation or government spending

If a bank has $6,000 in check able deposits and the required reserve ratio is 0.2, then the bank can lend a. $4,000 b. $16,000 c. no more than $4,800 d. no less than $3,000 e. $1,000

C. no more than $4,800

The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery (T/F)

False

IF a customer deposits $1000 cash into her checking account , the bank's a. assets rise by $1,000 and liabilities fall by $1,000 b. assets fall by $1,000 and liabilities rise by $1,000 c. assets and liabilities both fall by $1,000 d. assets and liabilities both rise by $1,000 e. profits rise by $1,000

D. Assets and liabilities both rise by $1000

Suppose you bank at Bank A and you write a check to your friend, who banks at Bank B. What happens after the check clears? a. Both Bank A's and Bank B's assets increase. b. Both Bank A's and Bank B's assets decrease. c. Bank A's assets increase and Bank B's assets decrease. d. Bank A's assets decrease and Bank B's assets increase. e. There is no change in either bank's assets.

D. Bank A's assets decrease and Bank B's assets increas

Which monetary policy would be appropriate to close a contractionary gap? a. a tax cut b. a decrease in government purchases c. an increase in reserve requirements d. the Fed's purchase of U.S. government securities e. the Fed's raising the discount rate

D. The Fed's purchase of U.S government securities

During a recession, output is a. above potential and unemployment is below the natural rate b. above potential and unemployment is above the natural rate c. below potential and unemployment is below the natural rate d. below potential and unemployment is above the natural rate

D. below potential and unemployment is above the natural rate

Graph in Exhibit 25-10 shows a(n) a. increase in long run aggregate supply b. increase in short run aggregate supply c. decrease in short run aggregate supply d. decrease in long run aggregate supply

D. decrease in long run aggregate supply

The quantity theory of money a. states that fiscal policy plays an important role in determining economic activity b. states that the quantity of money in circulation determines aggregate spending c. argues that velocity is unpredictable d. states that the quantity of money in circulation determines only the price level in the long run e. states that the quantity of money in circulation determines only real spending in the short run

D. states that the quantity of money in circulation determines only the price level in the long run.

If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar, a. both the U.S. dollar and the yen have appreciated b. both the U.S. dollar and the yen have depreciated c. the U.S. dollar has appreciated and the yen has depreciated d. the U.S. dollar has depreciated and the yen has appreciated e. the yen has appreciated and the U.S. dollar has remained constant

D. the U.S dollar has depreciated and the yen has appreciated

After the Great Depression, the role of fiscal policy in the U.S. economy was changed as a result of a. the influence of Keynes's General Theory b. the economic impact of World War II c. the Employment Act of 1946 d. both a and c e. all of the above

E. influence of Keynes. economic impact of WWII, employment act of 1946.

A Drop in the Natural rate of unemployment would shift the Long Run Aggregate Supply curve left. ( T/F)

False

Consider 25-3 . the short run equilibrium output is Y1. ( T/f)

False

Discretionary fiscal policy works by shifting the short-run aggregate supply curve. ( T/F)

False

If the actual price level is less than the expected price level reflected in long - term contracts, firm owners find production more profitable than they had expected. (T/F)

False

If the inflation rate is 4 percent a year and everyone expected 2 percent a year, then the potential level of GDP will increase. (T/F)

False

Most government purchases are made at the federal, not the state, level of government. ( T/F)

False

Banks are permitted to lend all of their excess reserves ( T/F)

True

Banks create money when they make loans ( T/f)

True

Compensation is usually negotiated in terms of the nominal wage because wage agreements are based on expected price levels. ( T/F)

True

If the actual price level is higher than the expected price level, the economy will expand in the short run. (T/F)

True

If the government cuts taxes by 100 bn, then the final change in GDP would be: (-$100bn x - MPC ) x ( 1 / 1-MPC ) (T/F)

True

M1 is the narrowest measure of the money supply. (t/f)

True

The Natural rate of unemployment includes frictional, cyclical, and structural unemployment. ( T/F)

True

If the money supply is $600, the price level is $2, and real GDP is $300, what is velocity? a. 1 b. 150 c. 300 d. 600 e. 1,200

a. 1

By how much would government purchases have to change if the government wanted to increase income by $1,000 and the MPC were 0.9? a. $100 b. $900 c. $1,000 d. $10,000/9

a. 100 = 1000 / ((1/(1-.9)) 100 = 1000 / 10

The Budget of the United States Government is officially submitted by a. the President to the Congress and contains proposals for government expenditures b. the Congress to the President and contains proposals for government expenditures c. the President to the Congress and contains proposals for tax increases d. the Congress to the President and contains proposals for tax increases e. the President to the Congress and it is reviewed by the Supreme Court

a. President to the congress and contains proposals for government expenditures.

Which of the following is a credit item (+) in the U.S. balance of payments? a. U.S. companies sell merchandise abroad. b. Foreign companies sell merchandise to U.S. consumers. c. U.S. consumers send money to foreign companies. d. Immigrants to the United States send presents of money back to their families in their native countries. e. Immigrants to the United States send presents of goods back to their families in their native countries.

a. U.S companies sell merchandise abroad

In 25-3 , the distance between y1 and y2 is called a. an expansionary gap b. an contractionary gap c. an increase in potential output d. the natural rate of unemployment

a. an expansionary gap

Which of the following is represented by Exhibit 18-3? a. An increase in the Canadian demand for Swiss francs. b. An increase in the Swiss demand for Canadian dollars. c. Canadian exports to Switzerland decrease. d. The Swiss franc is devalued. e. The Swiss franc depreciates.

a. an increase in the Canadian demand for Swiss francs.

Which of the following would increase the U.S. demand for foreign currency? a. an increase in the U.S. demand for foreign goods b. an increase in incomes abroad c. a decrease in U.S. incomes d. a decrease in the U.S. demand for foreign goods e. an increase in U.S. real interest rates

a. an increase in the U.S demand for foreign goods

If something causes the velocity of money to increase, the same amount of money will a. be able to support more transactions, so nominal GDP can increase b. be forced to support more transactions, so nominal GDP will decrease c. be able to support fewer transactions, so nominal GDP will decrease d. no longer have to support so many transactions, so nominal GDP can increase e. mean nothing can happen to nominal GDP

a. be able to support more transactions, so nominal GDP can increase.

The value of a country's exports is listed in its balance of payments account as a(n) a. credit b. debit c. payment d. investment e. unilateral transfer

a. credit

If interest rates fall in country A, other things constant, a. demand for that country's currency will fall and the currency will depreciate b. demand for that country's currency will fall and the currency will appreciate c. demand for that country's currency will rise and the currency will depreciate d. demand for that country's currency will rise and the currency will appreciate

a. demand for that country's currency will fall and the currency will depreciate

A drop in dollar price of British pounds means that a. fewer dollars are needed to buy British pounds b. more dollars are needed to buy British pounds c. the mark has appreciated d. the dollar has depreciated e. British goods are now more expensive to Americans

a. fewer dollars are needed to buy British pounds.

A deficit resulting from the use of discretionary fiscal policy a. increases interest rates b. decreases interest rates c. increases interest rates if the effect of the decrease in the demand for money is greater than the effect of the increase in the supply of government securities d. increases interest rates if the effect of the decrease in the demand for money is less than the effect of the increase in the supply of government securities e. increases interest rates if the effect of the increase in the demand for money is greater than the effect of the decrease in the supply of government securities

a. increase interest rates

The demand for foreign currency in the United States a. increases as the level of imports increases b. increases as the level of exports increases c. decreases with the lowering of the inflation rate abroad d. decreases as foreign interest rates rise e. is unaffected by U.S. demand for goods and services abroad

a. increases as the level of imports increases

The opportunity cost of holding money is measured by the a. interest rate b. liquidity lost by holding money c. money supply curve d. inflation rate e. cost of cashing in financial assets

a. interest rate

The demand curve for foreign exchange a. slopes downward b. slopes upward c. is horizontal, because no individual country can influence the price of foreign exchange d. is vertical, because no individual country can influence the price of foreign exchange e. may slope downward or upward

a. slopes down ward

If the Fed increases the money supply, then a. the interest rate declines and the quantity of money demanded increases b. the interest rate declines and the quantity of money demanded declines c. the interest rate increases and the quantity of money demanded increases d. the interest rate increases and the quantity of money demanded declines e. nothing happens to the quantity of money demanded

a. the interest rate declines and the quantity of money demanded increases.

Those who argue against interest rate targets for monetary policy claim that a. the necessary changes in money supply reinforce business cycles b. the necessary changes in money supply dampen expansions c. increased crowding out reduces private investment even more d. inflation would fall e. monetary policy is too effective

a. the necessary changes in money supply reinforce business cycles

the classical economist believed that the economy automatically move toward equilibrium at full employment

a. true

Which of the following would shift the Long Run Aggregate Supply curve to the left a. an increase i the size of the labor force b. reduction in the quality of the labor force c. a reduction in the cost of using computers d. a decrease in the price level

b. a reduction in the quality of the labor force.

During economic contractions, transfer payments such as welfare benefits a. automatically increase, reducing incomes further b. automatically increase, reducing the impact of the contraction on disposable income c. automatically decrease, because tax revenues fall and welfare benefits are no longer affordable d. are decreased, as a discretionary move on the part of Congress to stimulate expansion e. are increased, as a discretionary move on the part of Congress to cushion recipients against the negative effects of economic contraction

b. automatically increase , reducing the impact of the contraction on disposable income

As a result of an increased deficit associated with discretionary fiscal policy, a. both the interest rate and real output fall b. both the interest rate and nominal output rise c. the interest rate falls and real output rises d. the interest rate rises and real output falls e. nominal output rises, real output falls, and the interest rate rises

b. both the interest rate and nominal output rise

If the deficit is increasing because of the effects of the automatic stabilizers, a. all of the following b. the economy is contracting c. the annual deficit will approach zero d. the budget is cyclically balanced e. the economy is growing

b. economy is contracting

If the money supply equals $1,000 and nominal GDP equals $3,000, then V a. equals 1/3 b. equals 3 c. equals 3 million d. cannot be determined since we do not know anything about prices e. cannot be determined since we do not know anything about real GDP

b. equals 3

Exchange rates a. are always fixed b. fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied c. fluctuate to equate imports and exports d. fluctuate to equate interest rates in various countries e. fluctuate according to agreements between the governments of various countries

b. fluctuate to equate the quantity of foreign exchange demanded with the quantity supplied

Foreign nations' demand for dollars increases as a. Americans travel abroad b. foreigners purchase American goods c. Americans purchase foreign goods d. Americans buy foreign stocks or bonds e. Americans send cash gifts abroad

b. foreigner purchase American goods

If the Fed increases the money supply, GDP a. increases because the resulting increase in the interest rate leads to a decrease in investment b. increases because the resulting decrease in the interest rate leads to an increase in investment c. decreases because the resulting increase in the interest rate leads to a decrease in investment d. decreases because the resulting increase in the interest rate leads to an increase in investment e. decreases because the resulting decrease in the interest rate leads to an increase in investment

b. increases because the resulting decrease in the interest rate leads to an increase in investment.

All of the following are tools of fiscal policy except one. Which is the exception? a. taxes b. transfer payments c. interest rates d. government purchases of goods

b. interest rates

For interest rates to remain stable during economic expansions, the growth rate of the money supply should a. exceed the growth in the demand for money b. just match the growth in the demand for money c. be less than the growth in the demand for money d. be zero e. just match the growth in nominal GDP

b. just match the growth in the demand for money

The demand for money is based primarily on money's role as a(n) a. store of wealth b. medium of exchange c. standard of value d. interest-bearing asset e. non-interest-bearing asset

b. medium of exchange

The trade balance is a. the services balance plus the current account balance plus the capital account balance b. merchandise exports minus merchandise imports c. the current account balance plus the capital account balance d. foreign purchases of domestic assets minus domestic purchases of foreign assets e. the services balance plus the capital account balance

b. merchandise exports minus merchandise imports

If the Fed targets the interest rate, then a. the money supply will grow at a more controlled rate b. monetary policy will reinforce fluctuations in economic activity c. the price level will be more stable in the long run d. money demand will be more stable e. velocity will be less stable

b. monetary policy will reinforce fluctuations in economic activity

Crowding out occurs by a. causing reduced government purchases of goods and services b. reducing the value of the multiplier used for government purchases of goods and services by increasing the interest rate c. reducing the value of the multiplier used for government purchases of goods and services by increasing the marginal propensity to consume d. reducing the value of the multiplier used for government purchases of goods and services by decreasing the marginal propensity to consume e. increasing the value of the multiplier used for government purchases of goods and services by increasing the marginal propensity to consume

b. reducing the value of the multiplier used for government purchases of goods and services by increasing the interest rate

Exhibit 25-6, at income level y1, a. potential output is less than actual output b. the actual unemployment rate is greater than the natural rate of unemployment c. aggregate supply will fall to restore equilibrium d. there is an expansionary gap

b. the actual unemployment rate is greater than the natural rate of unemployment

Which of the following was a highly successful application of fiscal policy in the United States? a. Roosevelt's strategy in combating the Great Depression b. the tax cut of 1964 c. the temporary tax surcharge of 1968 d. the battle against stagflation during the 1970s e. the large tax cut of 1981

b. the tax cut of 1964 ( kennedy)

During the 1970s, demand-management policy a. continued to be highly successful in curing the economy's economic problems b. was found to be highly unsuitable in periods of stagflation such as the decade of the 1970s c. was so unsuccessful that economists advised a return to the pre-World War II philosophy of fiscal policy d. was unsuccessful because the automatic stabilizers no longer influenced the economy e. was unsuitable because it affected aggregate supply more than aggregate demand

b. was found to be highly unsuitable in periods of "stagflation" such as the decade of the 1970s

Crowding in is more likely to occur, as a consequence of federal deficits, when a. the economy is overheated b. interest rates increase significantly c. a contractionary gap exists d. the deficits lower expectations about economic growth e. an expansionary gap exists

c. a contractionary gap exists CROWDING IN

The long - run aggregate supply curve is represented by a. an upward - sloping line b. a downward - sloping line c. a vertical line d. a horizontal line

c. a vertical line

Problems with the federal government budget process include a. Congress having to make tough choices each year on which entitlement programs, if any, will receive full support and how much partial support all others will receive b. the constitutional requirement that Congress balance the budget on an annual basis c. an overly detailed budget that allows Congress to reward friends, thereby discouraging restraint on spending d. a speedy process that causes errors that are expensive to correct e. continuing resolutions that force Congress to face tough budgetary decisions in a timely manner

c. an overly detailed budget that allows Congress to reward friends, thereby discouraging restraint on spending.

In Exhibit 30-4, short-run equilibrium occurs a. at point a b. at point b c. at point c, where the actual price level exceeds the expected price level d. at point c, where the actual price level is less than the expected price level e. at point c, where there is a contractionary gap

c. at point c , where the actual price level exceed the expected price level.

If aggregate output is falling, a. both b and e b. tax revenue increases c. automatic stabilizers will tend to increase the size of the deficit d. automatic stabilizers will tend to decrease the size of the deficit e. transfer payments decrease as fewer people become eligible for public assistance

c. automatic stabilizers will tend to increase the size of the deficit.

Because some resource prices are assumed to be constant in the short run a. the aggregate supply curve is horizontal in the short run b. the aggregate supply curve is vertical in the short run c. costs do not increase as much as output prices do when the price level rises.

c. costs do not increase as much as output prices do when the price level rises.

In the long run, a decrease in aggregate demand will cause a(n) a. decrease in price and output levels b. increase in the price level and a decrease in output c. decrease in the price level and no change in output

c. decrease in the price level and no change in output

The largest category of federal government expenditures is a. national defense b. interest on the federal debt c. direct benefit payments to individuals d. grants to states and localities e. capital expenditures

c. direct benefit payments to individuals

If the U.S. dollar appreciates, it means that a. the value of the U.S. dollar has decreased b. the value of foreign exchange has increased c. fewer U.S. dollars are required to purchase foreign exchange d. more U.S. dollars are required to purchase foreign exchange e. exports will fall immediately

c. fewer U.S dollars are required to purchase foreign exchange

Which of the following is not a weakness of fiscal policy? a. Implementation of policy is difficult. b. Time lags in fiscal policy are long and variable. c. Fiscal policy works only during periods of stagflation. d. Fiscal policy often affects only current income, but many economic decisions are made on the basis of permanent income. e. Fiscal policy might have undesirable long-term effects on short-run aggregate supply.

c. fiscal policy works only during periods of staglation

Which of the following might be considered the most expansionary set of fiscal policies? a. increase in government purchases, increase in taxes, and decrease in transfer payments b. decrease in government purchases, increase in taxes, and decrease in transfer payments c. increase in government purchases, decrease in taxes, and increase in transfer payments d. increase in government purchases, increase in taxes, and increase in transfer payments

c. increase in government purchases, decrease in taxes, and increase in transfer payments

Which of the following, other things constant, will shift the money demand curve to the right? a. an increase in the interest rate b. a decrease in the interest rate c. an increase in real GDP d. a decrease in real GDP e. a decrease in the price level

c. increase in real GDP

The immediate effect of a member bank's sale of U.S. government securities to the Fed is a(n) a. increase in that bank's required reserves b. decrease in that bank's required reserves c. increase in that bank's excess reserves d. decrease in that bank's excess reserves e. decrease in the Fed's assets

c. increase in that bank's excess reserves

The tax cut of 1964 (proposed by President Kennedy) a. was the last time fiscal policy was used b. was the greatest failure as a demand-management tool c. actually increased investment, consumption, and employment d. shifted the aggregate demand curve leftward e. was the first time the focus moved away from managing aggregate demand to focus exclusively on aggregate supply

c. increased investment, consumption and employment

The equation of exchange states that the quantity of money multiplied by the velocity of money equals a. real Gross Domestic Product b. the price level c. nominal Gross Domestic Product d. the turnover rate e. the demand for money

c. nominal Gross Domestic Product

The federal funds rate is the interest rate paid when a. the Federal Reserve makes loans to member banks b. taxpayers pay overdue taxes c. one bank borrows reserves from another bank d. banks make loans to the federal government e. the federal debt is refinanced

c. one bank borrows reserves from an other bank

When crowding out occurs, a. private spending replaces public spending b. the dollar typically weakens in foreign exchange markets c. public spending replaces private spending d. it offsets any gains created from the lower interest rates e. none of the above

c. public spending replaces private spending

Suppose that the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent. Which of the following is true? a. Required reserves on the new deposits are $12,000. b. Excess reserves on the new deposits are $500,000. c. Required reserves on the new deposits are $60,000. d. Excess reserves on the new deposits are $12,000. e. Total reserves on the new deposits are $440,000.

c. required reserves on the new deposits are 60,000

Federal budget deficits grow during recessions because a. both tax revenues and transfer payments decrease b. both tax revenues and transfer payments increase c. tax revenues decrease while transfer payments increase d. tax revenues increase while transfer payments decrease

c. tax revenues decrease while transfer payments increase

The velocity of money is defined as a. the time it takes the average worker to get to the bank with his/her paycheck b. the time it takes banks to clear checks c. the average number of times per year each dollar is used to purchase final goods and services d. M P ÷ Y e. the average number of times per year each dollar is spent for goods, payrolls, Social Security payments, etc.

c. the average number of times per year each dollar is used to purchase final goods and services

A nation has an unfavorable balance of trade when a. it has a surplus in its balance of payments b. it has a deficit in its balance of payments c. the value of its imports of goods is greater than the value of its exports of goods d. its current account is in surplus and its capital account is in deficit e. it has high tariffs

c. the value of its imports of goods is greater than the value of its exports of goods.

Assume autonomous net taxes fall by $300; the MPC = 2/3. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. The value of the spending multiplier equals a. 1 b. 10 c. 3 d. 0 e. an indeterminate value

c.3 1/(1-2/3)

19. if r is the required reserve ratio, which of the following is the simple money multiplier?

d. 1/r

To close an expansionary gap using fiscal policy, the government can a. increase government spending b. increase government spending and decrease taxes at the same time c. decrease taxes d. decrease government spending or increase taxes e. decrease government spending by the size of the gap

d. decrease government spending or increase taxes

If the Fed is targeting interest rates and money demand shifts from Dm to Dm' in Exhibit 30-6, the Fed will a. do nothing and the interest rate will rise to i' b. do nothing and the interest rate will settle at i c. decrease the money supply to restore its target of i d. increase the money supply to restore its target of i e. decrease money demand back to Dm to restore its target of i

d. decrease money demand back to Dm to restore its target of i.

In the situation shown in Exhibit 30-3, how could the Fed return the economy to potential output? a. decrease government spending b. increase taxes c. decrease taxes d. decrease the money supply e. increase the money supply

d. decrease the money supply

The central idea of fiscal policy is that a. planned deficits are undertaken during an expansionary gap and planned surpluses undertaken during a contractionary gap b. the balanced budget approach is the proper criterion for stabilizing the economy c. actual deficits should equal actual surpluses during a contractionary gap. d. deficits are planned during contractionary gap and surpluses are utilized to restrain an expansionary gap e. the key to fighting inflation is planning budget deficits

d. deficits are planned during contractionary gap and surpluses are utilized to restrain an expansionary gap

The short run is a period of time a. when there is an expansionary gap and firms run their plants only for short periods b. of one year or less c. when there is a contractionary gap d. during which resource buyers and sellers cannot adjust fully to changes in the price level.

d. during which resource buyers and sellers cannot adjust fully to changes in the price level.

Assume autonomous net taxes rise by $500; the marginal propensity to consume = 3/4. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will a. rise by $500 b. fall by $500 c. rise by $1,500 d. fall by $1,500 e. rise by $2,000

d. fall by 1,500

Assume autonomous net taxes rise by $500; the marginal propensity to consume = 0.75. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, equilibrium real GDP demanded will a. rise by $500 b. fall by $500 c. rise by $1,500 d. fall by $1,500

d. fall by 1500

If the government increases its purchases by $100 and the multiplier is 4, then equilibrium real GDP demanded a. increases by $25 b. decreases by $25 c. increases by $100 d. increases by $400 e. decreases by $400

d. increases by 400

In a single currency arrangmentsuch as the Euro which of these statements is not true a. Transaction costs between members are reduced c. A central monetary authority such as the ECB controls monetary policy b. Member states must rely more on adjustments in wages and prices to maintain full employment d. Individual member states can set interest rates according to the needs of theor own economy

d. individual member states can set interest rates according to the needs of their own economy.

Classical economists believed that if investment were greater than saving, the interest rate would __________, causing saving to __________ and investment to __________ until the two were equal. a. rise; decrease; increase b. fall; decrease; increase c. fall; increase; decrease d. rise; increase; decrease e. fall; increase; increase

d. interest rate would Rise, saving increase, investment to Decrease

If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a depository institution, what happens to the money supply, using the simple multiplier? a. Nothing. b. It increases by $5,000. c. It decreases by $5,000. d. It increases by $50,000. e. It decreases by $50,000.

d. it increases by 50,000 1/(.10) * 5,000 = 50,000

If the government increased defense spending by $1 million and laid off enough Justice Department employees to decrease the Department of Justice budget by $1 million, we would expect the net effect to be a. an increase in the budget deficit and in transfer payments b. an increase in the budget deficit and in net taxes c. an increase in the budget deficit and in government spending d. no change in the budget deficit because there is no net change in government spending e. no change in the budget deficit because neither defense spending nor the Department of Justice is included in government spending

d. no change in the budget deficit because there is no net change in government spending

The exchange rate is the a. ratio of exports to imports b. interest rate the U.S. government charges on international transactions c. pricing policy of goods scheduled for export d. price of one nation's currency in terms of another nation's currency e. price that central banks charge each other for currency exchanges

d. price of one nation's currency in terms of another nation's currency

Assume autonomous net taxes fall by $300; the MPC = 2/3. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, consumption will initially a. remain unchanged b. rise by $300 c. fall by $300 d. rise by $200 e. fall by $200

d. rise by 200 2/3 * 300 = 200

The merchandise trade balance does not include a. exports of refrigerators b. imports of automobiles c. exports of agricultural products d. shipping and insurance costs e. imports of food items with heavy tariffs

d. shipping and insurance costs

. The simple tax multiplier is a. 1/MPC b. 1 c. 1/(1 - MPC) d. Change in taxes / (1 - MPC) e. -MPC/(1 - MPC)

e. -MPC/(1 - MPC)

Refer to Exhibit 14-2. By how much can this bank alone now increase its lending? Assume a required reserve ratio of 10 percent. a. $1,000 b. $10,000 c. $0 d. $90 e. $900

e. 900

Which component of aggregate expenditure is affected when net taxes are cut? a. net exports; they increase b. government purchases; they fall c. government purchases; they rise d. consumption; it falls e. consumption; it rises

e. consumption it rises

To bring the economy shown in Exhibit 30-5 to its potential output level, the Fed could a. do nothing and the price level would fall to P' b. do nothing and the price level would remain at its current level c. increase the money supply and increase the price level to P" d. increase the money supply and decrease the price level to P' e. decrease the money supply and decrease the price level to P'

e. decrease the money supply and decrease the price level to P1

The velocity of money increases for all of the following reasons except a. use of electronic transmission of funds b. increased use of charge accounts c. increased use of automatic teller machines d. a rising inflation rate e. decreased use of credit cards

e. decreased use of credit cards

If government increased Social Security benefits and decreased the salaries of government workers by the same amount, we would expect the immediate effect to be a. an increase in the budget deficit and in government purchases of goods and services b. an increase in the budget deficit but no change in government purchases of goods and services c. an increase in the budget deficit and a decrease in government purchases of goods and services d. no change in the budget deficit because there has been no change in government purchases of goods and services e. no change in the budget deficit because government purchases of goods and services have decreased by the same amount as transfer payments have increased

e. no change in the budget deficit because government purchases of good and services have decreased by the same amount as transfer payments have increased.

If the government wants the economy illustrated in Exhibit 12-2 to be at full employment, it should a. increase taxes b. decrease transfer payments c. decrease government purchases d. wait for the SRAS curve to shift to the left e. do none of the above

e. none of the above

The Bretton Woods agreement did all of the following except a. set up the International Monetary Fund b. name the U.S. dollar as the key reserve currency c. set the price of gold at $35 per ounce d. fix exchange rates e. return the international monetary system to the gold standard

e. return the international monetary system to the gold standard

An increase in aggregate demand will have the greatest short-run effect on real output if the a. aggregate demand curve is horizontal b. aggregate demand curve is vertical c. aggregate demand curve is horizontal and the short-run aggregate supply curve is vertical d. short-run aggregate supply curve is vertical e. short-run aggregate supply curve is horizontal

e. short - run aggregate supply curve is horizontal

Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except a. the difficulty of estimating the natural rate of unemployment b. the time lags involved in implementing fiscal policy c. the existence of possible feedback effects of fiscal policy on aggregate supply d. the distinction between current and permanent income e. the problems of inflation and unemployment were basically solved

e. the problems of inflation and unemployment were basically solved

Approximately __________ of the budget falls into expenditure categories that are determined by existing law.

e. three - quarters

Military spending is a good example of an automatic stabilizer.

false

An increase in the money supply can increase the price level, real GDP, or both, but it is impossible to tell exactly what will happen without knowing the slope of the aggregate supply curve. ( T/F)

true