Macro
Which of the following correctly explains the crowding-out effect?
An increase in government expenditures increases the interest rate and so reduces investment spending.
Figure 33-10. Refer to Figure 33-10. If the economy starts at point A, a short-run fall in output would be consistent with a movement to point
D.
Figure 33-10. Refer to Figure 33-10. If the economy starts at point C, stagflation would be consistent with point
D.
Choose the item below that is not a routine task
Gardening
The current chair of the Federal Reserve is
Jerome Powell
Which of the following is NOT a mandatory spending budget item in the U.S. government budget?
Salary payments to military troops
The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?
both the price level and real GDP rise.
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
buying bonds. This buying would increase the money supply.
The money supply increases when the Fed
buys bonds. The increase will be larger, the smaller is the reserve ratio.
When conducting an open-market purchase, the Fed
buys government bonds, and in so doing increases the money supply.
Suppose the economy begins in a short-run recessionary equilibrium. As price expectations and wages adjust and the economy moves from the short-run equilibrium to the new long-run equilibrium,
consumer spending increases as prices fall generating a movement along the AD curve
In the short-run, when the Federal Reserve increases the federal funds interest rate, aggregate demand __________ because ____________.
decreases, investment spending falls
When taxes increase, the interest rate
decreases, making the change in aggregate demand smaller.
The CBO projection for 2031 debt levels
do not include possible additional spending on infrastructure
The U.S. tax code provides incentives for all of the following EXCEPT
drinking red wine
The Federal Reserves dual final targets are
employment and inflation
For the following questions, use the diagram below:Figure 34-7. Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of
a decrease in net exports.
The April jobs report showed
a large increase of new jobs in March
Some economists have compared the initial pandemic induced supply shock to
a natural disaster
The marginal propensity to consume (MPC) is defined as the fraction of
extra income that a household consumes rather than saves.
In response to a rise in energy prices, wages will eventually
fall because of the initial increase in unemployment
Permanent tax cuts shift the AD curve
farther to the right than do temporary tax cuts.
The Federal Reserve uses the ____________ as an intermediate target to affect its final targets of _____________ and ____________ .
federal funds interest rate, employment, inflation
Suppose the economy begins in a short-run recessionary equilibrium. As price expectations and wages adjust and the economy moves from the short-run equilibrium to the new long-run equilibrium,
firms are willing to produce more because input costs are falling
The Atlanta Fed's Sticky Price CPI inflation measure, tracks inflation
for goods whose prices change relatively infrequently
In which case can we be sure real GDP rises in the short run?
foreign economies expand and government purchases rise.
If the government deficit this year is $400 billion, then
government debt will increase by $400 billion
Fiat money
has no intrinsic value.
Medicare is primarily what kind of program
health insurance program for retirees
The price level rises in the short run if
aggregate demand shifts right or aggregate supply shifts left.
The economy's quick recovery from the 1980-82 recession was in part a result of
all of the above
The political independence of the Federal Reserve serves to
allow monetary policy to be formulated based on economic rather than political considerations
Which of the following events shifts aggregate demand rightward?
an increase in government expenditures, but not a change in the price level
For the following questions, use the diagram below:Figure 34-7. Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be
an increase in the money supply.
When people believe that the Federal Reserve is committed to a low inflation environment, this helps to
anchor price expectations
Keynes used the term "animal spirits" to refer to
arbitrary changes in attitudes of household and firms.
Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. What happens to the price level and real GDP in the short run?
both the price level and real GDP fall
The number of retired workers rises as the baby boom generation ages. This will result in
higher mandatory spending
The longest lag associated with monetary policy is
impact lag
The following picture appears in the Paul Krugman article posted on Canvas. The picture is illustration of which of the following concepts
impact of sticky price adjustment on inflation when inflation expectations are large
Since 1969, the U.S. federal government had a budget surplus
in the late 1990s
Jobs requiring routine tasks are largely concentrated
in the middle of the wage distribution
Over the next 10 years, the share of the U.S. population over 65 years of age will
increase
If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to
increase by $360 billion.
When the Federal Reserve conducts an open market purchase of $40 million, the first impact is that bank reserves
increase by $40 million
Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could
increase interest rates. This decrease would also move the price level closer to its value before the rise in stock prices.
To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could
increase the money supply by buying bonds.
During the Great Recession, U.S. government outlays __________ and U.S. government revenues _________________.
increased, decreased
Since 1979, overall real wages at the 90th percentile of the wage distribution have _____________ while real wages at the 10th percentile have ____________ .
increased, stayed about the same
An necessary element of Federal Reserve credibility is
independence from political pressure
One reason Federal Reserve credibility is important is because
inflation expectations can be self-fulfilling and a credible Federal Reserve is better able to anchor inflation expectations
If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
it increases by $150,000
Computerization/automation have led to job growth in
jobs whose tasks are largely non-routine
In 2020 federal government outlays were
just over $2 trillion higher than 2019 outlays as a result of fiscal relief spending
In a fractional-reserve banking system, a bank
keeps only a fraction of its deposits in reserve.
A reduction in U.S net exports would shift U.S. aggregate demand
leftward. In an attempt to stabilize the economy, the government could increase expenditures.
In the long-run, technological change has generally led to
little to no change in the natural rate of unemployment
The growth and inflation trends of the 1990s are consistent with which of the following
long-run supply increasing faster than aggregate demand
During the 1990s, economic conditions created
low inflation and high real output growth
A negative aggregate demand shock will have which of the following impacts in the long run.
lower prices
To lower inflation during the 1980-82 "double-dip" recession, the Federal Reserve raised the federal funds interest rate which led to
lower spending and higher unemployment
The deductibility of mortgage interest
makes home-owning less expensive for some households
In 2020 the biggest change in government outlays was in which of the following categories
mandatory
The recession of 1980-1982 was caused by
monetary policy shock initiated to lower inflation
It will likely take anywhere from 6-24 months for the low federal funds interest rate to fully affect spending, employment and inflation. This is indicative of
monetary policy's long impact lag
Consider the exhibit below for the following questions. Figure 33-4 Refer to Figure 33-4. If the economy starts at A and moves to D in the short run, the economy
moves to C in the long run.
Consider the exhibit below for the following questions. Figure 33-4 Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy
moves to D.
Monetary policy affects employment
only in the short run.
In the short-run an increase in the costs of production makes
output fall and prices rise.
When the Federal Reserve has high credibility that it will effectively tackle inflation, then if the Fed acts to lower inflation,
price expectations and inflation quickly adjust
Social security is primarily what kind of program
provides retirement income to those who have worked
When Jerome Powell speaks of the economy being at an "inflection point" he is referring to the potential for a robust recovery as long as
public health conditions do not further deteriorate
The Biden infrastructure proposal envisions funding the additional spending by
raising corporate income taxes
Computerization and automation have led to employment polarization. Which of the following is NOT consistent with employment polarization
rising employment only in the northern and southern parts of the country
Which of the following would cause stagflation?
rising oil prices
Figure 34-8 Refer to Figure 34-8. An increase in government purchases will
shift aggregate demand from AD1 to AD2.
Figure 34-8 Refer to Figure 34-8. An increase in taxes will
shift aggregate demand from AD1 to AD3.
After the FOMC's last meeting (March 12-13), the statement (Links to an external site.) contained the following paragraph: "The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook." The paragraph is an example of
summary of economic conditions
A problem that the Fed faces when it attempts to control the money supply is that
the Fed does not control the amount of money that households choose to hold as deposits in banks.
When the economy is moving from a recessionary short-run equilibrium to its long-run equilibrium, if price expectations adjust quickly then we might expect
the SRAS curve to shift down/right more quickly
Economic expansions in Europe and China would lead to which of the following outcomes in the short run
the U.S. price level and real GDP to rise.
If an aggregate demand shock initially decreases investment spending by $75 billion and the MPC equals .5, then
the aggregate demand curve shifts to the left by $150 billion
If MPC = .75 and government spending increases by $10 billion,
the aggregate demand curve shifts to the right by $40 billion
If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, which of the following is NOT true
the bank will be able to use this deposit to make new loans amounting to $500
The picture below shows the value of the S&P 500 stock price index. As you can see, the value of the index has risen steadily throughout the pandemic recession. This is indicative of
the better profit position of large firms relative to small firms during this recession
The increase in investment during the 1990s information technology boom generated a decline in inflation because
the capital stock rose and increased short-run and long-run aggregate supply
Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?
the crowding-out effect
Liquidity refers to
the ease with which an asset is converted to the medium of exchange.
The lag problem associated with monetary policy is due mostly to
the fact that business firms make investment plans far in advance.
Today, bank runs are not a major problem for the U.S. banking system because
the federal government now guarantees the safety of deposits at most banks.
When the Fed buys government bonds,
the money supply increases and the federal funds rate decreases.
The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates
the multiplier effect.
The lag problem associated with fiscal policy is due mostly to
the political system of checks and balances that slows down the process of implementing fiscal policy.
Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run
the price level will rise, and real GDP might rise, fall, or stay the same.
The quicker that wages and price expectations adjust
the quicker will be the economy's adjust back to potential output
Imagine the U.S. economy is in long-run equilibrium. Then suppose the aggregate demand increases. We would expect that in the long-run the price level would
increase.
A tax cut targeted at ____ people may have a bigger effect because
poorer; poorer people tend to spend a higher share of their income.
The 2008 credit crunch occurred when banks reduced lending in response to
the loss of asset value for mortgage backed securities and mortgage loans.
If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as
$10,000.
In 2020 the federal government's fiscal deficit was approximately
$3.1 trillion
A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to
$80.
The money multiplier equals
1/R, where R represents the reserve ratio for all banks in the economy.
In 1980, inflation as measured with the PCE, reached just over
11%
If the reserve ratio is 4 percent, then the money multiplier is
25.
Using the CBO budget infographic for 2019 posted on Blackboard, what share of government outlays went toward Social Security and Medicare in 2019? Please round your answer to the nearest tenth and don't include the % sign. For example, if your calculation was 36.789%, then enter 36.8.
32
On April 16th, the Atlanta Fed's GDPnow estimate of GDP growth was ______%. (Please enter your answer without the percentage sign. For example, if your answer is 3.2%, enter 3.2.)
8.3
As of March 2021, the economy had ___________ jobs relative to February 2020.
8.4 million fewer
In March, retail sales increased by ______%. (Please enter your answer without the percentage sign. For example, if your answer is 3.2%, enter 3.2.)
9.8
Prior to an FMOC meeting, the Federal Reserve prepares a report that summarizes economic conditions in each Federal Reserve district. This report is called
Beige Book
During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.
Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.
Chapter 10 Digging Deeper
Chapter 10 Digging Deeper
Chapter 10 Quiz
Chapter 10 Quiz
Chapter 11 Digging Deeper
Chapter 11 Digging Deeper
Chapter 11 Quiz
Chapter 11 Quiz
Chapter 9 Digging Deeper
Chapter 9 Digging Deeper
Chapter 9 Quiz
Chapter 9 Quiz
Which of the following is NOT included in the Biden infrastructure proposal
Child care subsidies
The largest share of government outlays is
Mandatory spending
OTHER
OTHER
The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. What happens to the expected price level and what impact does this have on wage bargaining?
The expected price level rises. Bargains are struck for higher wages.
Suppose that the stock market experiences a significant and prolonged decline. In response, the Federal Reserve lowers the federal funds interest rate. Not long afterward the interest rate decline, there is a large positive shock to investment spending. As a result of both the monetary policy action and the investment spending shock, all of the following occur EXCEPT
consumption will fall
Social security is a "pay as you go" program. That means
current benefits to the retired are paid with current taxes paid by the non-retired workers
If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves
decrease by $25.5 million and the money supply eventually decreases by $170 million.
Suppose investment spending falls. To offset the change in output the Federal Reserve could
decrease interest rates. This increase would also move the price level closer to its value before the decline in investment spending.
When the Federal Reserve conducts an open market sale of government securities, we would expect bank reserves to ____________ and the federal funds interest rate to ____________.
decrease, increase
Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. If nominal wages are sticky, which of the following helps explains the change in output?
real wages rise, so firms choose to produce less
The cash that banks keep on hand or on deposit at the Federal Reserve is called
reserves
On a bank's T-account, which are part of the bank's assets?
reserves but not deposits made by its customers
One of the economic dangers of monetary policy's impact lag, is that monetary policy may
result in the economy "overshooting" the full employment goal
Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the
right by $70 billion.
Stagflation exists when prices
rise and unemployment rises.
Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to
rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.
The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market boom shifts
short-run aggregate supply left.
Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the crisis shifts
short-run aggregate supply right.
Which of the following would cause prices to fall and output to rise in the short run?
short-run aggregate supply shifts right
Which of the following is NOT an example of U.S. government discretionary spending?
social security
In the digging deeper slides, slide #8 shows that the CBO projected debt held by the public to rise to close to 100% of GDP by 2030. This projection was before the large expenditures for economic relief from the pandemic induced downturn. The projected deficits shown on the slide arise from projected expenditures for
social security and medicare expenses for future retirees.
When government spending increases by $5 billion and the MPC = .8, in the first round of the spending multiplier process
spending increases by $5 billion
The FOMC statement normally contains which of the following EXCEPT
statistics from the Beige Book
During a more typical recession spending on services __________ while during this pandemic recession spending on services _____________.
stays about the same, decreased
Consider the exhibit below for the following questions. Figure 33-4 Refer to Figure 33-4. If the economy starts at A and there is a fall in aggregate demand, the economy moves
to C in the long run.
The logic of the multiplier effect applies
to any change in spending on any component of GDP.
If inflation expectations rise, even without any fundamental economic reasons, it is likely that the expectations themselves
will lead to higher prices and inflation