Macro Economics test 150-200

The most important way in which inefficiency occurs is Answers: a. producing more military goods instead of civilian goods. b. limiting economic growth by limiting capital spending. Correctc. unemployment of labor and other resources. d. producing outside the production possibilities frontier. e. All of the above are correct

Correct c. unemployment of labor and other resources.

If the reserve requirement is 20 percent and a new deposit of $10,000 in cash is made by a customer to their checking account, by how much are excess reserves increased? Answers: a. $8,000 b. $4,000 c. $10,000 d. $2,000

a. $8,000

Which of the following statements is true? Answers: Correcta. Abstraction forms an important part of economic analysis. b. Economic theory does not make unrealistic assumptions. c. Economists should not ignore details while focusing on complex problems. d. The word theory means same for both economists and laymen.

a. Abstraction forms an important part of economic analysis.

using the standard 45 degree line diagram, how does a decrease in net exports effect the expenditure schedule? a. it shifts the expenditure schedule downward b. it decreases the slope of the expenditure schedule c. it shifts the expenditure schedule upward d. it increases the slope of the expenditure schedule

a. It shifts the expenditure schedule downward.

Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles? Answers: Correcta. The Fed's policies cannot be targeted at only one sector of the economy. b. Price changes for one asset or one industry cannot have a substantial impact on the entire economy. c. The FDIC rather than the Fed is responsible for recognizing bad lending practices. d. all of the above

a. The Fed's policies cannot be targeted at only one sector of the economy.

Historically, the government has used fiscal policy to affect the economy through Answers: Correcta. aggregate demand. b. indicative planning. c. aggregate supply. d. central planning.

a. aggregate

The multiplier principle illustrates that Answers: Correcta. an increase in investment spending will be multiplied into a larger increase in GDP. b. investment spending is always a multiple of consumer spending. c. an increase in GDP will be multiplied into a larger increase in consumer spending. d. an increase in GDP will be multiplied into a larger amount of investment spending

a. an increase in investment spending will be multiplied into a larger increase in GDP.

When economists refer to the economy's self-correcting mechanism, they are referring to the fact that the Answers: Correcta. economy will react automatically to an inflationary gap through inflation. b. simple multiplier is greater than the complex multiplier. c. economy will react automatically to an inflationary gap through deflation. d. economy will react automatically to a recessionary gap through inflation

a. economy will react automatically to an inflationary gap through inflation.

The multiplier principle is built on the premise that one person's spending is another person's Answers: Correcta. income. b. debt. c. obligation. d. saving

a. income

In 2010, in order to stimulate capital investment, President Obama proposed Answers: Correcta. increased write-offs for businesses purchasing equipment. b. an increase in the tax on capital gains. c. a reduction in real interest rates. d. an increase in the money supply

a. increased write-offs for businesses purchasing equipment.

Economists generally assume that there is a short-run trade-off between Answers: Correcta. inflation and unemployment. b. output and employment. c. deflation and unemployment. d. inflation and employment. e. output and growth

a. inflation and unemployment.

In a situation of free trade Answers: Correcta. the total quantity of an item exported will equal the total quantity imported. b. countries with comparative advantage will export more than countries with comparative disadvantage import. c. the total quantity of an item exported will be greater than the total quantity imported. d. importing countries will always produce some good, so that total quantity imported is less than total quantity exported.

a. the total quantity of an item exported will equal the total quantity imported

Why might the Fed decide to monetize the deficit? Answers: Correcta. to keep interest rates low b. to keep inflation low c. to reduce the structural deficit d. to reduce the budget deficit

a. to keep interest rates low

In 2009, the U.S. had a budget deficit of approximately Answers: a. $161 billion. Correctb. $1.4 trillion. c. $800 billion. d. $459 billion

b. $1.4 trillion.

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009? Answers: a. Only the Federal Reserve acting as the central bank can serve as the lender of last resort. Correctb. The inflated price of Treasury bills made them too expensive to purchase in open market operations. c. The Fed was able to act more quickly than Congress. d. The large budget deficit constrained fiscal policy.

b. The inflated price of Treasury bills made them too expensive to purchase in open market operations.

The German inflation rate after World War I was measured in the thousands of percents. This condition is referred to as Answers: a. fundamental inflation. Correctb. hyperinflation. c. environmental inflation. d. episodic inflation.

b. hyperinflation.

The blame for failing to address the budget deficits of the 1980s and early 1990s Answers: a. is clearly the fault of the Republican administrations. Correctb. is a political question rather than an economic question. c. is clearly the fault of the Democratic Congresses. d. is an economic question rather than a political question.

b. is a political question rather than an economic question.

Unemployment insurance has an important macroeconomic effect because it Answers: a. props up aggregate exports. Correctb. props up aggregate demand. c. props up aggregate supply. d. helps balance the federal budget.

b. props up aggregate demand

One of the major reasons why nations trade is that Answers: a. nations wish to exert cultural influence abroad. Correctb. resources are not equally distributed across the planet. c. nations wish to copy others, and need imports to study. d. nations choose to trade for largely unknown reasons

b. resources are not equally distributed across the planet.

Some nations that seek to produce all of their own needs face the problem that Answers: a. people don't want a wide variety of choices when buying. Correctb. some industries are too small to be efficient. c. other countries may want to buy from them. d. All of the above are true.

b. some industries are too small to be efficient

In Figure 10-1, what is the equilibrium level of real GDP and equilibrium price? Answers: a. $5,000 billion real GDP and price level of 120 b. $7,500 billion real GDP and price level of 100 Correctc. $6,000 billion real GDP and price level of 110 d. $5,000 billion real GDP and price level of 110

c. $6,000 billion real GDP and price level of 110

Consumer spending accounts for what share of GDP? Answers: a. 40% b. 20% Correctc. 70% d. 90%

c. 70%

If wages rise by 12 percent at the same time prices rise by 3 percent, then the increase in real wages is equal to Answers: a. 3 percent. b. 6 percent. Correctc. 9 percent. d. 12 percent

c. 9 percent.

Suppose Tammy grew up on a farm and is very good at plowing. In addition suppose she is a popular country singer who earns $4,000 per performance. If her husband Bob can plow (but not as well as Tammy) but he can't carry a tune, then it would be most efficient if Answers: a. Tammy specialized in plowing and Bob in singing. b. Tammy did both the plowing and the singing. Correctc. Tammy specialized in singing and Bob in plowing. d. Bob did both the plowing and singing. e. They both plowed and sang

c. Tammy specialized in singing and Bob in plowing

The growth rates of actual and potential GDP Answers: a. are similar in the short run but not the long run. b. are similar in both the short and long run. Correctc. are similar in the long run but not the short run. d. are different in both the short and long run.

c. are similar in the long run but not the short run.

The financing of investment spending is often made possible by Answers: a. tax reductions. b. consumer spending. Correctc. borrowing. d. money supply creation.

c. borrowing

The argument that budget deficits are inflationary is Answers: a. correct only when the deficit is monetized. b. correct only when the aggregate supply curve is horizontal. Correctc. correct only when the aggregate supply curve is upward sloping. d. always correct.

c. correct only when the aggregate supply curve is upward sloping.

When a bank makes loans with excess reserves, it Answers: a. destroys money. b. leaves the money supply unchanged. Correctc. creates money. d. alters the composition of M1.

c. creates money

A transfer payment is a sum of money Answers: a. moved between companies for goods and services. b. shifted between members of a household. Correctc. given by government without a good or service in exchange. d. spent by government for new goods and services. e. required to pay taxes.

c. given by government without a good or service in exchange.

If the price level does not fall or only falls very slowly, then the result will be a prolonged period of Answers: a. rapid price increases when demand changes. b. inflation whenever supply increases. Correctc. production below potential GDP. d. production above potential GDP

c. production below potential GDP

For liberals, the United States has a(n) Answers: a. private sector that is too small. b. public sector that is too large. Correctc. public sector that is too small. d. economy that is too heavily regulated

c. public sector that is too small.

To eliminate an inflationary gap, the expenditure schedule should Answers: a. shift upward. b. become steeper. Correctc. shift downward. d. become flatter

c. shift downward

The combination of high unemployment and high inflation is termed Answers: a. unflation. b. reflation. Correctc. stagflation. d. depression.

c. stagflation

The division of labor usually refers to splitting Answers: a. political leaders into radical and conservative camps each year. b. the three coordination decisions among different sets of planners. Correctc. the parts of a complex task among different workers. d. the production of consumption goods and capital goods among different workers

c. the parts of a complex task among different workers.

If, at the the full employment level of income, the amount that businesses plan to invest is greater than the amount that consumers plan to save, then a. the economy will suffer from increasing unemployment b. total demand will fall short of potential GDP c. there will be an inflationary gap d. there will be a deflationary gap

c. there will be an inflationary gap

The typical American family spends about ____ percent of its budget on goods, and the remainder on services. Answers: a. 74 b. 22 c. 68 Correctd. 34

d. 34

Tools used by economists include Answers: a. historical study. b. mathematical reasoning. c. statistical inference. Correctd. All of the above are correct.

d. All of the above are correct

Political factors influence international trade because Answers: a. foreign trade always involves at least two governments. b. foreign governments are much less concerned with the welfare of citizens in other countries. c. foreign governments often establish impediments to free international trade. Correctd. All of the above are correct.

d. All of the above are correct.

If prices rise, then persons living on fixed incomes will Answers: a. see their real incomes falling. b. see the purchasing power of their savings fall. c. need to spend more to maintain their standard of living. Correctd. All of the above are true.

d. All of the above are true

In economic analysis, which of the following is considered an injection? Answers: a. taxes b. saving c. imports Correctd. exports

d. exports

An import quota on a product normally does all of the following except Answers: a. reduces the volume of that product traded. b. raises the price in the importing country. c. reduces the price in the exporting country. Correctd. increases the price everywhere

d. increases the price everywhere

Labor productivity is calculated by dividing GDP by Answers: a. population. b. the price level. c. capital stock Correctd. labor force

d. labor force.

The actual multiplier for the U.S. economy is estimated to be Answers: a. between 3 and 4. b. about 10. c. approximately 5. Correctd. less than 2

d. less than 2.

The federal government's principal tool in altering consumer spending is changing Answers: a. federal sales taxes. b. corporate income taxes. c. unemployment insurance benefits. Correctd. personal income tax rates

d. personal income tax rates.

America's antitrust laws are used to protect competition against possible encroachment by monopoly. This is an example of government as Answers: a. buyer of goods and services. b. redistributor. c. tax collector. Correctd. regulator of businesses

d. regulator of businesses

In 1975, Congress passed a tax rebate to spur consumer spending. Consumers: Answers: a. spent the entire amount of the tax savings, boosting the economy, as planned b. did not spend any of the amount of the tax savings c. saved a small portion of the tax savings, and spent the rest Correctd. saved a substantial share of the tax savings and spent the rest

d. saved a substantial share of the tax savings and spent the rest

In figure 9-3, investment plus net exports equals a. $600 billion b. $400 billion c. $200 billion d. $1,200 billion e. $800 billion

e. $800 billion

The first economist to point out the importance of specialization of labor was Answers: a. Leonardo da Vinci. b. Enrico Caruso. c. David Ricardo. d. John Maynard Keynes. Correcte. Adam Smith

e. Adam Smith

Which of the following is likely to affect the position and shape of society's production possibilities frontier? Answers: a. volume of physical resources b. level of labor skills c. level of technology d. amount of factories on hand Correcte. All of the above are correct

e. All of the above are correct.

How are the slope of a production possibilities frontier and the opportunity cost of the goods related? Answers: a. The slope is a graphical representation of the cost of expanding production of both goods. b. The slope is a graphical representation of the cost of economic growth in the economy. c. The slope is a graphical representation of the cost of decreasing unemployment. d. The slope is a graphical measure of the growth rate of the economy. Correcte. The slope is a graphical representation of the rate of trade-off between the goods.

e. The slope is a graphical representation of the rate of trade-off between the goods.

Policy-oriented economists seek to develop theories to Answers: a. describe what happened in a particular time period in history. b. describe current economic events. c. change people's values and ethics. d. find correlations between events. Correcte. explain how things work so policies can be formulated.

e. explain how things work so policies can be formulated.