Macro Final Study Guide
The money multiplier is:
1 divided by the reserve requirement
Which statement is NOT true? A. The regional Federal Reserve Regional Bank located in Topeka serves as a banker for the U.S. treasury. B. The Federal Reserve Regional bank locating in Boston participates in the regulation and supervision of member banks. C. The Federal Reserve Regional Bank in Chicago participates in the distribution of coins and currency. D. The regional Federal Reserve Bank located in San Francisco does not accept deposits from U.S. citizens.
A.
If the reserves requirement is 25%, a new deposit of $1,000 leads to a potential increase in the money supply of: A. $4000 B. $5000 C. $250 D. $10000
A. $4,000
Demand-pull inflation scenarios took place in the: A. 1960s for the US and from 1985-1995 for Japan B. 1930's for the US and from 1985 to 1995 for japan
A. 1960's for the US and from 1985-1995 for Japan
The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 3%, output gap is 1% and the inflation gap is 1%, the target interest rate is: A. 6% B. 4% C. 5% D. 7%
A. 6% (2 + 3 + [1/2(1)] + [1/2 (1)])
The _____ is (are) equal to the total market value of all final goods and services produced in the United States. A. GDP B. national income and product accounts C. consumer price index D. the National Bureau of Economic Research
A. GDP
Which of the followng persons is considered part of the labor force? A. Joe, a senior in high school who works part-time on weekends at the ice cream shop. B. Jamal, who just graduated from college and is backpacking in Europe for six months. C. Tessa, an 8-year-old who sells lemonade on the sidewalk for 50 cents a glass. D. Mary, who works as a librarian in prison because she poisoned her cheating boyfriend.
A. Joe, a senior in high school who works part-time on weekends at the ice cream shop.
A decrease in the reserve ratio will increase excess reserves. A. true B. false
A. True
Because the Fed meets about every 6 weeks, the decision lag for monetary policy is shorter than for fiscal policy. A. true B. false
A. True
If Jordan deposits $1,200 cash into his checking account, his bank's assets rise by $1,200 and its liabilities rise by $1,200. A. true B. false
A. True
To solve the double counting problem, economists include only final goods and services in the summing of gross domestic product. A. true B. false
A. True
Monetary policy is LEAST effective in reversing: A. an adverse supply shock B. demand-pull inflation C. a decrease in private spending D. rapid growth in consumption expenditures.
A. an adverse supply shock
Which of the following is included in gross private domestic investment? A. an increase in business inventories B. highway construction by a government contractor C. purchases of common stock by investors D. the purchase of a new TV by a household
A. an increase in business inventories
The largest component of GDP is: A. consumption expenditure B. net exports C. gov. spending D. gross private domestic investment
A. consumption expenditure
The income approach to calculating GDP includes compensation of employees plus: A. corporate profits and rental income B. national income and gov. expenditures. C. rental income and net exports. D. net interest and net exports.
A. corporate profits and rental income
If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing: A. deflation B. disinflation C. inflation D. hyperinflation
A. deflation
A country's infrastructure does not affect its economic growth. A. false B. true
A. false
China's GDP per capita would have been higher if not for the deterioration in its environment. A. false B. true
A. false
Over the past few decades, net exports in the US have been a positive percentage of GDP. A. false B. true
A. false
Keynes believed that saving is a function of: A. income B. the price of money C. the interest rate D. GDP
A. income
The financial panic and credit freeze in late 2008 pointed to the Fed's important role as a : A. lender of last resort B. creator of inflation C. promoter of price stability D. promoter of full employment.
A. lender of last resort
The Index of Economic Freedom: A. measures the quality of a country's intangible infrastructure. B. is completely objective. C. measures the degree of tolerance with respect to drugs. D. measures the distribution of income.
A. measures the quality of a country's intangible infrastructure.
An economy is operating at long-run equilibrium. What is the most-likely result of an aggressive expansionary fiscal policy? A. no change in long-run GDP and employment B. a decrease in the unemployment rate C. a decrease in prices
A. no change in long-run GDP and employment
_____ on credit by households and _____ interest rates set in motion the events that led to the 2007-2009 recession. A. overspending; low B. underspending; low C. overspending; high D. underspending; low
A. overspending; low
Developing countries can achieve higher productibity per unit of capital because they can use technologies developed by other countries. This is known as the: A. productivity effect B. catch-up effect C. increasing returns to capital effect D. copycat effect
A. productivity effect.
Which of the following assumptions is NOT a problem in using the consumer price index (CPI) to accurately state the rate of inflation? A. the CPI does not deal with producer prices B. the CPI assumes that people do not substitute goods. C. the CPI does not account for quality changes D. the CPI does not include new products.
A. the CPI does not deal with producer prices
During the financial panic in late 2008, the Fed changed the allocation of assets in its balance sheet away from Treasury bonds toward bank assets. A. true B. false
A. true
Economic growth typically results in longer life expectancies. A. true B. false
A. true
Expansionary monetary policy shifts the aggregate demand curve rightward. A. true B. false
A. true
For the economy, it matters whether or not you put your cash in a bank A. true B. false
A. true
Friedman advocated a steady growth in the supply of money. A. True B. False
A. true
GDP can be determined by using either the spending (right) side or the income (left) side of the circular flow diagram. A. true B. false
A. true
If an index of well-being were included in the national income and product accounts, information on life expectancy, the stock of human capital, income distributions, poverty rates, and unemployment rates might be collected. A. true B. false
A. true
In 2007, the Fed reduced the stigma of borrowing from it by auctioning money for banks to borrow. A. true B. false
A. true
Increasing excess reserves will cause a decrease in the actual money multiplier. A. true B. false
A. true
It can be said that macroeconomics was born during the Great Depression. A. true B. false
A. true
Low interest rates are primarily responsible for the fact that the US debt is relatively manageable. A. true B. false
A. true
Macroeconomics focuses on issues such a job growth, economic growth, and inflation rates. A. true B. false
A. true
The balanced budget multiplier equals 1 A. true B. false
A. true
The velocity of money is the average number of times it is spent in a year. A. true B. false
A. true
When the economy booms, tax revenues rise faster than income. A. true B. false
A. true
When the open market committee buys $1 million worth of bonds, $1 million of reserves is instantly put into the banking system. A. true B. false
A. true
According to Keynesian analysis, if households intend to save more, they will: A. ultimately cause job losses B. ultimately spend more C. cause jobs to increase because investment will increase D. cause the GDP to increase because inflation will decrease.
A. ultimately cause job losses.
When money is used to measure and compare the value of goods and services, it is used as a: A. unit of account B. store of value C. medium of exchange
A. unit of account
The full Keynesian model illustrates the importance of spending in an economy whose investment, gov. spending, and exports all increase income, while saving, taxes, and imports reduce it. A. true B. false
A.true
When the price of bonds increases, general interest rates decrease. A. true B. false
A.true
Callie withdraws $600 from her bank account. If the reserve requirement is 15%, by how many dollars must her bank reduce its lending? A. $667 B. $510 C. $90 D. $600
B. $510 (.15 x 600 and subtract it from 600)
If income rises from $10,000 to $20,000 and consumption increases from $9000 to $16000, then the marginal propensity to consumer is: A. 0.80 B. 0.70 C. 0.10 D. 0.30
B. 0.70 (7,000/10,000)
About how many U.S. depository institutions are bound by the Fed's reserve requirements? A. 1500 B. 15000 C. 150,000 D. 1.5 million
B. 15,000
If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is: A. 3% B. 2.4% C. 5% D. 2.8%
B. 2.4%`
If an economy's GDP will double in 25 years, then its growth rate must be about: A. 28% B. 2.8% C. 2.5% D. 25%
B. 2.8% (25= 70/Growth Rate) (25 x GR = 70) (70/25=GR)
The two types of reserves are federal reserves and required reserves. A. true B. false
B. False
The velocity of money is equal to the GDP divided by the price level. A. true B. false
B. False
Young females have a higher unemployment rate than young males. A. true B. false
B. False
Which country was NOT bailed out by the European Central Bank in the period from 2008 to 2013? A. Ireland B. France C. Portugal D. Spain
B. France
Sometimes the Fed faces conflicting goals and it must emphasize one goal over another. Which of these is a goal of the Fed that might conflict with its goal of full employment? A. keeping tax rates low B. keeping the price level stable C. promoting an equitable distribution of income D. promoting economic growth
B. Keeping the price level stable.
Which action is the Federal Reserve MOST likely to take to curb inflation? A. lower reserve requirements B. sell securities in the open market C. raise taxes D. lower the discount rate
B. Sell securities in the open market
If real GDP per capita has increased, the standard of living in the country has improved. A. false B. true
B. True
Total factor productivity would NOT change if: A. a civil war ended B. a major new source of oil was discovered C. a major disease struck D. a major innovation occurred.
B. a major new source of oil was discovered
The 1973 oil shocks created: A. demand-pull inflation B. cost-push inflation C. a shift to the right of the aggregate supply curve. D. a shift to the right of the aggregate demand curve.
B. cost-push inflation
Financial institutions greatly increase the flow of funds to the economy by: A. increasing transaction costs. B. decreasing information costs. C. assuming all of the risk of lending funds
B. decreasing information costs
The household survey is a great source of discovering: A. manufacturing activity B. entrepreneurial activity C. outsourcing trends D. inflationary trends
B. entrepreneurial activity
A bank's equity is the sum of its assets and liabilities. A. true B. false
B. false
A person is considered to be unemployed if he or she has been either actively or passively looking for work. A. true B. false
B. false
According to economists, agriculture is the factor responsible for most economic growth in recent years. A. true B. false
B. false
According to the Taylor rule, if the Federal Reserve tries to target inflation near 2%, the inflation rate is 1.5%, and output is 2.3% below potential GDP, the target federal funds rate is 4.4%. A. true B. false
B. false
Demand deposits are savings accounts that were offered when customers started to demand them. A. true B. false
B. false
Henry sells brownies to his classmates at college for cash. His income from this product is probably NOT part of the informal economy. A. true B. false
B. false
If a country's GDP per capita is $86,000, then a typical married couple earns $172,000 per year. A. true B. false
B. false
If the Federal Reserve followed Milton Friedman's monetary rule, it would increase the money supply to fight rescissions and decrease the money supply to fight inflation. A. true B. false
B. false
If the reserve requirement is 10%, then the actual money multiplier is 10 and the potential money multiplier is less than 10. A. true B. false
B. false
If you write a $1000 check to your landlord and your landlord deposits that money into his or her bank, the money supply can increase by the amount of that check times the money multiplier. A. true B. false
B. false
In the short run, demand and supply shocks to the economy require the same monetary policy. A. true B. false
B. false
Term auctions are considered to be the last resort for stimulating the economy. A. true B. false
B. false
The Laffer curve has aggregate expenditure and income on its axes. A. true B. false
B. false
The double coincidence of wants problem is made worse by the introduction of money. A. true B. false
B. false
The sharp drop in the money multiplier between 2008 and 2009 enhanced the Fed's ability to fight the recession. A. true B. false
B. false
The supply of loanable funds includes only private savings. A. true B. false
B. false
Time deposits greater than $100,000 are included in M2. A. true B. false
B. false
consumers reduce their spending by the exact amount of a tax increase. A. true B. false
B. false
When household debt levels rise: A. investment levels rise B. families are less able to spend in the current period C. the ability to earn more credit rises D. tax payments will be higher
B. families are less able to spend in the current period
If the reserve requirement is 20%, then a $1 decrease in deposits means that the money supply: A. has the potential to increase by $20. B. has the potential to decrease by $5. C. will increase by $5. D. will decrease by $5.
B. has the potential to decrease by $5.
Demand-pull inflation is caused by: A. increases in wages, pushing prices higher B. increases in aggregate demand. C. decreases in aggregate supply D. consumers demanding better quality, which increases costs.
B. increases in aggregate demand.
Assume that the reserve requirement is 20% and the Federal Open Market Committee buys a $10,000 bond. The impact on the banking system is a _______ in new reserves. A. injection of $50000 B. injection of $10,000 C. reduction of $50,000 D. injection of $2,000
B. injection of $10,000
The demand curve for loanable funds represents ____and is _______. A. investors; horizontal B. investors; downward sloping C. savers; horizontal D. savers; downward sloping
B. investors; downward sloping
The national economic objectives that the Fed attempts to achieve include all of the following actions EXCEPT: A. keeping the price level stable B. keeping tax rates low C. promoting economic growth accompanied by full employment. D. maintaining moderate long-term interest rates
B. keeping tax rates low
All of the following are included in the definition of M2 EXCEPT: A. coins B. large time deposits C. savings deposits D. demand deposits
B. large time deposits
If the economy is currently operating below long-run output, what should the Federal Reserve do? A. set interest rates at exactly 2% B. lower interest rates from their current level. C. raise interest rates from their current level. D. leave interest rates alone.
B. lower interest rates from their current level
Federal spending that is authorized by permanent laws and does not go through the annual appropriation process is called ________ spending. A. discretionary B. mandatory C. long-term D. infrastructure
B. madatory
The Federal Reserve rarely uses control of _____ to implement monetary policy. A. open market operations. B. the reserve requirement. C. the federal funds rate. D. the discount rate.
B. the reserve requirement
Lydia graduates from a culinary school. This action increases human capital. A. false B. true
B. true
The payroll survey has a larger sample than the household survey and so is considered a more accurate measure of employment. A. false B. true
B. true
If a person borrows $3,000 at 8% interest and never makes any payments, how much will the loan balance be after 10 years? A. $4,500 B. $5,400 C. $6,476.77 D. $7,676.67
C. $6,476.77
Which of the following equations is correct? A.) AE=C + I - G + (X-M) B.) AE= C + I +G + (X+M) C.) AE= C + I + G + (X-M) D.) AE= C-I + G - (X+M)
C. AE= C + I + G + (X-M)
The GDP of the country Econia is $100 billion with the following components: C=$50 billion, I=$15 billion, G=$30, and (X-M)= $5 billion. Which of the following would have the largest immediate impact to increase Econia's GDP? A. The gov. spends $10 billion more on transfer payments. B. Inventory investment rises by $5 billion due to decreases in sales. C. Exports rise by $4 billion. D. Consumers spend $8 billion more by reducing their savings by $8 billion.
C. Exports rise by $4 billion.
Which of the following is NOT considered an example of one of the four main factors of production? A. internship programs B. mineral deposits C. cash bonds D. construction cranes
C. cash bonds
Interest on debt as a percentage of GDP was at its highest: A. during world war II B. during the 1970's C. during the late 1980s and early 1990s D. in 2009
C. during the late 1980's and early 1990's.
If Abigail withdrawals $300 cash form her checking account, her bank's assets then: A. do not change but liabilities fall by $300. B. fall by $300 but her liabilities do not change. C. fall by $300 and liabilities fall by $300 D. fall by $300 and liabilities rise by $300
C. fall by $300 and liabilities fall by $300.
When interest rates rise, exports ____ and imports ______. A. rise; fall B. fall; fall C. fall; rise D. rise; rise
C. fall; rise
Institutions that serve as the bridge between savers and borrowers are known as: A. commercial banks B. credit unions C. financial intermediaries D. securities firms
C. financial intermediaries
If the Federal Reserve increases its purchase of bonds, then the money supply will _______ and aggregate demand will ______.
C. increase; decrease
Equilibrium in the Keynesian model requires that withdrawals be the same as: A. credits B. debits C. injections D. deposits
C. injections
Which is NOT a source of productivity growth? A. raising the capital-to-labor ratio B. increasing the quality of labor C. moving resources from production to pension benefits D. making investments in technological improvements
C. moving resources from production to pension benefits
Which of the following items would be included in the GDP accounts? A. caring for your aged grandmother at home B. personally rotating the tires on your neighbor's car C. paying $50 consultation fee over the phone with a psychic advisor. D. personal time spent learning how to use accounting software
C. paying $50 consultation fee over the phone with a psychic advisor
The high point of a business cycle is called the: A. recession B. trough C. peak D. exansion
C. peak
What is the main claim of the aggregate expenditures model? A. lower taxes for businesses will "tickle-down" to consumers. B. spending is harmful while saving is helpful to an economy. C. Spending will generate income, which allows for more spending. D. The rich get richer and the poor get poorer.
C. spending will generate income, which allows for more spending.
What is the difference between the Eurozone and the European Union (EU)? A. There is no difference. B. The Eurozone refers to only those member countries that are geographically connected, having common borders within the EU, while the EU includes all member countries. C. The Eurozone includes all countries within the continent of Europe, while the EU includes only the European countries that have joined the European Union. D. The Eurozone includes all countries that adopted the Euro as their official currency, while the EU includes all countries that belong to the European Union.
D.
Spending by federal, state, and local governments has grown from ______ of GDP in the 1930s to more than ______ today. A. 5%; 10% B. 5%; 50% C. 30%; 70% D. 10%; 30%
D. 10%; 30%
Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is: A. 0% B. 7% C. 5% D. 3%
D. 3% (frictional + structural)
According to the equation of exchange, if PxQ=7 trillion and the money supply is 2 trillion, what is the velocity of money? A. 9 B. 5 C. 14 D. 3.5
D. 3.5
______ lags are shorter for monetary policy than for fiscal policy. A. implementation B. information C. recognition D. decision
D. Decision
Which of the following is true about hyperinflation? A. Hyperinflation can be stopped by printing larger denominations of paper currency. B. there have been no cases of hyperinflation in the world in the last two decades. C. Hyperinflation occurs when the inflation rate exceeds 1,000% per year. D. Financial assets in a hyper-inflated currency quickly become worthless.
D. Financial assets in a hyper-inflated currency quickly become worthless.
Which statement was NOT a criticism of the Federal Reserve's response to the 2007-2009 financial crisis in the U.S.? A. it did things outside its authority by buying troubled assets. B. it might lead to inflation in the future. C. it may have fed a housing bubble by keeping interest rates low. D. it took minimal rather than drastic action
D. It took minimal rather than drastic action.
_______ are almost 70% of GDP, while _____ are about 17% of GDP. A. government expenditures; net exports B. gov. expenditures; gross private domestic investments C. personal consumption expenditures; gov. expenditures D. Personal consumption expenditures; gross private domestic investments
D. Personal consumption expenditures; gross private domestic investments
Which of the following changes is likely to increase wages the most in a country? A. the labor force grows by 2%. B. Since the growth rate is 2% in all listed situations, wages would increase equally in all situations. C. Drainage of swampy land allows 2% more land to be farmed. D. The capital to labor ratio rises by 2%.
D. The capital-to-labor ratio rises by 2%.
The fractional reserve banking system: A. makes possible the money creation process. B. helps to prevent bank runs. C. requires banks to hold a portion of their demand deposits in reserves. D. all of the answers are correct.
D. all are correct
Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as: A. temporary workers B. the disgruntled unemployed C. the invisible unemployed D. discouraged workers
D. discouraged workers
Loosening monetary policy causes interest rates to _____, and consumption and investment to _____. A. fall; decrease B. rise; decrease C. rise; increase D. fall; increase
D. fall; increase
The budget philosophy closest in spirit to Keynesian economics is: A. the cyclically balanced budget B. perpetual deficit spending C. the annually balanced budget D. functional finance
D. functional finance
Disposable income equals: A. income plus gov. spending B. income minus gov. spending C. income plus taxes D. income minus taxes
D. income minus taxes
Consumer spending is NOT affected by: A. wealth B. consumer confidence C. taxes D. investories
D. investories
According to the Taylor rule, the lower the inflation rate, other things equal, the: A. higher the unemployment rate. B. lower the discount rate C. higher the federal funds target rate. D. lower the federal funds target rate.
D. lower the federal funds target rate
Money used to purchase goods or services is functioning as a: A. unit of account B. store of value C. standard value D. medium of exchange
D. medium of exchange
If the Federal Reserve Chair is considered a "dove," this means that she: A. enjoys bird watching and other leisure activities B. places greater emphasis on curbing inflation than promoting output C. places equal emphasis on promoting output and curbing inflation D. places greater emphasis on promoting output than curbing inflation
D. places greater emphasis on promoting output than curbing inflation.
An example of a less tangible component of a country's infrastructure is: A. high-speed rail tracks B. refurbished airports C. a new highway D. property rights
D. property rights
Which of these is an alternative countercyclical policy to a loose money policy if the policy goal is to reduce short-run unemployment? A. cut gov. purchases B. increase taxes C. reduce the money supply D. reduce taxes
D. reduce taxes
Public choice theorists primarily examine the: A. choices consumers make when in public B. ability of government to be efficient C. relationship between fiscal and monetary policies D. relationship between economics and political decision making
D. relationship between economics and political decision making
If Zachary deposits $500 cash into his checking account, his bank's assets then: A. rise by $500 and liabilities fall by $500. B. do not change but liabilities rise by $500. C. rise by $500 but liabilities do not change. D. rise by $500 and liabilities rise by $500.
D. rise by $500 and liabilities rise by $500.
If banks increase excess reserves to increase their ability to absorb a higher rate of defaults: A. the potential multiplier will rise B. the potential multiplier will fall. C. the actual multiplier will rise D. the actual multiplier will fall.
D. the actual multiplier will fall
The Federal Reserve will increase the money supply by a set percentage every year at a level consistent with long-term price stability and economic growth if it is following:
Friedman's monetary rule
The twin goals of monetary policy are:
economic growth and stable prices
The Federal Reserve will keep the inflation rate constant, regardless of evolving economic conditions, if it is using:
inflation targeting
Which approach to monetary policy would be MOST likely to increase unemployment problems caused by a negative supply shock to an economy?
inflation targeting
Sometimes the Fed faces conflicting goals and it must emphasize one goal over another. Which of these is a goal of the Fed that does NOT conflict with its goal of full employment? A. keeping tax rates low B. keeping the price level stable C. promoting an equitable distribution of income D. promoting economic growth
promoting economic growth
When the long-run aggregate supply curve is drawn as a vertical line, the theorist is assuming that:
the economy tends to move toward full employment in the long run
The discount rate is:
the rate regional Federal Reserve banks charge depository institutions to borrow reserves.