Macro test 4

In the United States, the Federal Deposit Insurance Corporation (FDIC) is responsible for deposit insurance. Thus, the United States government guarantees that depositors will receive up to

$250 thousand of their money in each account even if a bank fails.

Approximately _____ per day was targeted on foreign exchange markets in 2013.

$5 trillion

A government collects $600 billion annually in tax revenue. Each year it allocates $35 billion to healthcare and $50 billion for education. What percentage of annual tax revenue is allocated to these two categories of government spending? (Round your answer to two decimal places)

14.17

Total federal spending has ranged from about __________ of GDP since 1960.

18% to 22%

In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93 U.S. dollars. How much was 1 U.S. dollar worth in terms of Japanese yen, in 2010 and 2013?

2010: 113.6 yen, 2013: 107.5 yen

If nominal GDP is 1800, real GDP is 900 and the money supply is 450, then what is velocity?

4

A government collects $70 billion quarterly in tax revenue. Each year it allocates $15 billion to the justice system and $29 billion for the administrative costs. What percentage of its total annual tax revenue is left for allocation to the remaining categories of government spending? (Round your answer to two decimal places)

84.29

________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

A U.S. investor abroad benefits from a stronger dollar.

False

About a third of federal government spending went to national defense in 2012.

False

As budget deficit rises (or budget surplus falls) private savings falls all else equal.

False

If a country experiences a relatively high inflation rate compared with other countries, then it's currency will appreciate.

False

Social Security tax is a progressive tax.

False

The national debt refers to the total amount that the government has borrowed in one particular year.

False

The specific interest rate targeted by the Federal Reserve by using open market operations is the __________ rate which is the interest rate charged by commercial banks making overnight loans to other banks.

Federal Funds

Which of the following is the basic quantity equation of money?

MV = Nominal GDP

A Central Bank's policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?

Northern's loan assets increase by $30 million

Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to 70 then __________ all else equal.

Private savings would increase by 20

If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as

S + (M - X) = I + (G - T)

What do goods like gasoline, tobacco, and alcohol typically share in common?

They are all subject to government excise taxes

Taxes on international capital flows are sometimes known as __________ taxes.

Tobin

A U.S. dollar traded for 1.17 Canadian dollars in 1980 and by 1986 it traded for 1.39 Canadian dollars. This implies that a U.S. dollar has appreciated (strengthened) against Canadian dollar.

True

A U.S. tourist abroad benefits from a stronger dollar.

True

A higher interest rate or rate of return relative to other countries leads a nation's currency to appreciate or strength.

True

As budget deficit rises (or budget surplus falls) domestic private investment falls all esle equal.

True

As budget deficit rises (or budget surplus falls) trade deficit rises (or trade surplus falls) all esle equal.

True

Demand for the U.S. dollar can come from a U.S. exporting firm that earned foreign currency and is trying to pay U.S.-based expenses.

True

Education is the biggest expense item for state and local government spending.

True

Fiscal policy, in order to be more effective, has to be coordinated with monetary policy.

True

If the U.S. shifts from a government budget deficit to a budget surplus then the dollar is likely to depreciate all else equal.

True

Individual income tax is a progressive tax.

True

Policy decisions of the Federal Reserve do not require congressional approval.

True

The Federal Reserve's discount rate is higher than the federal funds rate.

True

The Medicare payroll tax is a proportional tax.

True

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with

a contractionary monetary policy

When the interest rate in an economy increases, it is likely the result in either:

a decrease in the government's budget surplus or an increase in its budget deficit

One of the following groups is not participating in the foreign exchange markets. Which one?

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

Which of the following denotes a common misunderstanding about exchange rates?

an appreciating currency must be better than a depreciating currency

The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.

an expansionary fiscal policy; an increase in government spending

If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a:

budget surplus

A central bank that wants to increase the quantity of money in the economy will

buy bonds in open market operations

How are the specific interest rates (i.e. car loan rates, mortgage rates etc.) determined?

by the forces of supply and demand in those markets

Ricardian equivalence means that

changes in private savings offset any changes in the government deficit

When inflation begins to climb to unacceptable levels in the economy, the government should use __________ fiscal policy to shift aggregate demand to the __________.

contractionary; left

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________

decrease

An increase in government borrowing can __________

decrease private investment in physical capital

A central bank must be concerned about whether a large and unexpected __________ will drive most of the country's existing banks into bankruptcy.

exchange rate depreciation

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _______________, but may be unable to do so because such a policy would _______________.

expansionary fiscal policy; lead to a budget deficit

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

government borrowing

Which of the following events would cause interest rates to increase?

higher discount rate

If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase, decrease or remain unchanged

When the central bank decides to increase the discount rate, then __________.

interest rates increase

When banks hold excess reserves because they don't see good lending opportunities

it negatively affects expansionary monetary policy

If the economy is in a recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP?

loose monetary policy

Through ___________ the Federal Reserve changes __________ in a way which affects the __________ of loanable funds. As a result, __________ changes.

open market operations; bank reserves; supply; federal funds rate

A ________________ causes a greater share of income to be collected from those with high incomes than from those with lower incomes.

progressive tax

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:

the dollar depreciated against the yen

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to

the trade deficit

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will follow

tight monetary policy

According to the basic quantity theory (equation) of money, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?

unpredictable rises and falls in nominal GDP

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

weakening; less