ECON 211 Exam 2
As a result of the traditional fiscal policy initiatives and a decline in tax revenue that normally occurs during a recession, the government budget deficit rose to _____ in 2009, which was nearly _____ of GDP: a) $1.4 trillion, 10% b) $100 billion, 10% c) $1.4 trillion, 5% d) $2.4 trillion, 10%
$1.4 trillion, 10%
At the beginning of the Great Recession, the Fed's balance sheet held about $1 trillion of assets. Because the Fed purchases a wide range of assets to support financial markets, provide liquidity, and keep longer term interest rates as low as possible, by the beginning of 2011, the size of the balance sheet had swelled to approximately: a) $1.4 trillion b) $4.2 trillion c) $2.4 trillion d) $2.2 trillion
$2.4 trillion
During the Great Recession, fiscal policy initiated both traditional and unconventional fiscal policies to battle the recession. The traditional fiscal policy actions included government purchases and tax cuts and were passed in a piece of legislation that was called: a) ACA (Affordable Care Act) b) TARP (Troubled Asset Relief Program) c) ARRA (American Reinvestment and Recovery Act) d) CARES (Coronavirus Aid, Relief, & Economic Security Act)
ARRA (American Reinvestment and Recovery Act)
During the Great Depression, depositors "ran" to banks to withdraw their funds. When too many depositors want to withdraw all at once, the bank will become insolvent. After the Great Depression, what program was created to maintain depositor confidence and prevent banking panics?: a) bank deposit insurance b) collective bargaining c) social security d) unemployment benefits
bank deposit insurance
Wages tend to be sticky: a) because of contracts, social norms, and the notions of fairness b) because of contracts, but not social norms or notions of fairness c) because of social norms and notions of fairness, but not contracts d) none of the above are correct
because of contracts, social norms, and notions of fairness
Deflation could occur during a severe recession and the deflation would make the economic downturn even worse because: a) deflation causes people to postpone spending b) deflation lowers asset prices which is a decline in wealth and causes people to spend less c) both of the above d) none of the above
both of the above
If personal income taxes decline by $500 million, then the first impact of that action is that consumer spending will: a) increase by less than $500 million because some of the additional income will be saved b) increase by exactly $500 million c) increase by more than $500 million d) decrease by $500 million
increase by less than $500 million because some of the additional income will be saved
Which of the following would increase consumption spending AND shift the aggregate demand curve to the right?: a) increase in housing prices b) decrease in stock market values c) increase in taxes d) increase in income
increase in housing prices
The average price level is measured by: a) the price of oil b) the rate of inflation c) the nominal interest rate d) the GDP deflator or the CPI
the GDP deflator or the CPI
The long-run aggregate supply curve shifts right if: a) immigration from abroad decreases b) the capital stock decreases c) the capital stock increases d) human capital decreases
the capital stock increases
Menu costs refers to: a) resources used by people to maintain lower money holdings when inflation is high b) resources used to price shop during times of high inflation c) the distortion in incentives created by inflation when taxes do not adjust for inflation d) the cost of more frequent price changes induced by higher inflation
the cost of more frequent price changes induced by higher inflation
Which of the following was NOT developed after the Great Depression to help diminish the severity of future economic downturns: a) bank deposit insurance b) the creation of the Federal Reserve c) social security d) unemployment compensation
the creation of the Federal Reserve
The interest rate that the Federal Reserve DIRECTLY changes as it conducts monetary policy is: a) the mortgage interest rate b) the prime rate c) the federal funds interest rate d) the money market
the federal funds interest rate
An increase in government purchases or a decrease in taxes will generate a multiplied effect on spending because: a) increased fiscal spending or lower taxes will increase the budget deficit and lower interest rates b) the first "splash" of spending will lead to fewer jobs which in turn will generate less spending c) the first "splash" of spending will lead to more jobs which in turn will generate more spending d) none of the above
the first "splash" of spending will lead to more jobs which in turn will generate more spending
The Great Depression originated in the United States, but was transmitted to other countries through: a) the gold standard b) coordinated actions between countries c) fiscal policy d) labor mobility
the gold standard
Which of the following is an example of an increase in government purchases?: a) the government builds new roads b) the Federal Reserve purchases government bonds c) the government decreases personal income taxes d) the government increases unemployment insurance benefit payments
the government builds new roads
A change to personal income tax rates has both an income and a substitution effect on labor supply. If personal income tax rates decline,: a) both the income effect and the substitution effect would lead people to decrease labor supply b) both the income effect and the substitution effect would lead people to increase labor supply c) the income effect would lead people to increase labor supply while the substitution effect would lead people to decrease labor supply d) the income effect would lead people to decrease labor supply while the substitution effect would lead people to increase labor supply
the income effect would lead people to decrease labor supply while the substitution effect would lead people to increase labor supply
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: a) the accelerator effect b) the multiplier effect c) the chain effect d) the bandwagon effect
the multiplier effect
The Fed can influence unemployment in: a) the short run and in the long run b) the short run, but not in the long run c) the long run, but not in the short run d) neither the short run nor the long run
the short run, but not in the long run
Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes: a) both the short run and the long run b) the short run, but not the long run c) the long run, but not the short run d) neither the long run nor the short run
the short run, but not the long run
In the 1970s, there was a large and sustained increase in the price of oil, as a result,: a) both the short-run aggregate supply curve and the long-run aggregate supply shifted to the left b) only the long-run aggregate supply shifted to the left c) the aggregate demand curve shifted to the left d) the short-run aggregate supply curve shifted to the left and long-run aggregate supply did not shift
the short-run aggregate supply curve shifted to the left and long-run aggregate supply did not shift
The wealth effect, the interest-rate effect, and exchange-rate effect are all explanations for: a) the slope of short-run aggregate supply b) the slope of long-run aggregate supply c) the slope of the aggregate-demand curve d) everything that makes the aggregate-demand curve shift
the slope of the aggregate-demand curve
At the onset of the Great Recession, the Federal Reserve quickly lowered the federal funds interest rate to its lowest level of: a) 0% b) 1% c) 1.5% d) 2%
0%
During the 1970s, inflation, as measured by the PCE, increased from about 5% in 1970, to _____ in 1980: a) 8% b) 11% c) 9% d) 13%
11%
Which of the following recessions was caused by a negative short-run aggregate supply shock?: a) Great Depression b) 1981-82 "double-dip" recession c) Great Recession d) 1973-1975 recession
1973-1975 recession
In 1960, government purchases as a share of GDP were approximately _____ and by 2018, government purchases as a share of GDP had fallen to approximately _____: a) 34%, 17% b) 44%, 27% c) 54%, 17% d) 15%, 10%
34%, 17%
If the MPC= 0.75, then the government purchases multiplier is about: a) 1.33 b) 7 c) 4 d) 3
4
During the Great Depression, output declined for: a) 4 decades b) 4 quarters c) 4 years d) 4 months
4 years
As a result of the monetary policy action of 1980-81 and the increased vigilance of the Federal Reserve, inflation expectations declined during the remainder of the 1980s, inflation average approximately: a) 4% b) 6% c) 2% d) 8%
4%
In 1968, mandatory government spending was approximately _____ of GDP and in 2018, mandatory government spending was about _____ of GDP: a) 10%, 12.5% b) 10%, 10% c) 5%, 12.5% d) 5%, 5%
5%, 12.5%
The CPI data from 1988-2009 show that the median non-sale (regular) price of consumer changes about once every: a) 10 months b) 12 months c) 7 months d) 6 months
7 months
Of the spending components (consumption, investment, government purchases, and net exports), consumption spending is the largest comprising about _____ of total spending: a) 50% b) 90% c) 70% d) 35%
70%
The initial impact of an increase in an investment tax credit is to shift: a) aggregate demand right b) aggregate demand left c) aggregate supply right d) aggregate supply left
aggregate demand right
In 2018, with which of the following countries/regions did the U.S. have the smallest trade deficit in goods?: a) Mexico b) Japan c) Canada d) European Union
Canada
Since the 2000s, U.S. trade deficit in goods has increased the most with which of the following countries or regions?: a) Europe b) Africa c) China d) Asian and Pacific rim countries excluding China
China
The current Chair of the Federal Reserve is: a) Jerome Powell b) Donald Trump c) Steve Mnuchin d) Christopher Wray
Jerome Powell
At the Federal Reserve: a) the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks b) the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year c) the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks d) the nation's monetary policy is made by the Federal Open Market Committee, which meets twice a year
The nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks
During the coronavirus pandemic, business shutdowns led to: a) a decrease in short-run aggregate supply b) an increase in short-run aggregate supply c) a decrease in potential output (long-run aggregate supply) d) an increase in aggregate demand
a decrease in short-run aggregate supply
Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift: a) aggregate demand right b) aggregate demand left c) aggregate supply right d) aggregate supply left
aggregate demand left
Higher interest rates in the U.S. cause: a) demand for U.S. bonds by foreigners to increase b) demand for U.S. currency to increase c) the U.S. dollar to appreciate in the foreign exchange market d) all of the above
all of the above
When the Federal Reserve lowers interest rates,: a) borrowing becomes cheaper b) spending & production rise c) employment increases d) all of the above
all of the above
When the U.S. dollar appreciates in the foreign exchange market,: a) U.S. goods become more expensive for foreigners b) foreign goods become cheaper for U.S. residents c) U.S. exports decline and U.S. imports increase d) all of the above
all of the above
The sticky-price theory implies that: a) the short-run aggregate supply curve is upward-sloping b) an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce c) menu costs influence the speed of adjustment of prices d) all of the above are correct
all of the above are correct
Which of the following is correct concerning the FOMC?: a) the members of the Board of Governors have the majority of the votes b) the New York Federal Reserve Bank District President is always a voting member c) all Federal Reserve Bank presidents attend the meeting d) all of the above are correct
all of the above are correct
Who can vote on Federal Open Market Committee decisions?: a) all of the members of the Board of Governors and all of the Federal Reserve Bank presidents b) all of the members of the Board of Governors and some of the Federal Reserve Bank presidents c) some of the members of the Board of Governors and all of the Federal Reserve Bank presidents d) some of the members of the Board of Governors and some of the Federal Reserve Bank presidents
all of the members of the Board of Governors and some of the Federal Reserve Bank presidents
Which of the following shifts short-run aggregate supply left?: a) an increase in the actual price level b) an increase in the expected price level c) an increase in the capital stock d) none of the above are correct
an increase in the expected price level
The recession at the beginning of the 1980s was caused by monetary policy to lower inflation and inflation expectations. One of the primary lessons arising from this time is the need for monetary policy to: a) allow politicians to influence monetary policy b) anchor inflation expectations c) promote lower unemployment d) be flexible with inflation
anchor inflation expectations
Economists would like to know how sticky wages are. However, one issue that makes this difficult is there isn't a log of high frequency on wages. Most data on wages in reported: a) hourly b) monthly c) weekly d) annually
annually
To lower spending and prices, in 1980 and 1981, the Federal Reserve increased the federal funds rate, which peaked at _____ in 1981: a) approximately 25% b) approximately 10% c) approximately 19% d) approximately 15%
approximately 19%
The members of the Federal Reserve's Board of Governors: a) are appointed by the president of the U.S. and confirmed by the U.S. Senate b) serve six-year terms c) are also the presidents of the regional Federal Reserve banks d) share power equally, with no governor having any more influence or power than any other governor
are appointed by the presidents of the U.S. and confirmed by the U.S. Senate
The curve that shows the quantity of goods and services that firms produce and sell: a) as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-demand curve b) as it relates to the quantity of goods and services that buyers want to buy is called the aggregate-supply curve c) as it relates to the overall price level is called the aggregate-demand curve d) as it relates to the overall price level is called the aggregate-supply curve
as it relates to the overall price level is called the aggregate-supply curve
If investment spending increased the capital stock rather than simply replacing older capital, then we would expect that: a) at first aggregate supply increases and later aggregate demand increases b) both aggregate demand and aggregate supply increase simultaneously c) at first aggregate demand increases and later aggregate supply increases d) output would decline
at first aggregate demand increases and later aggregate supply increases
A fall in the actual price level: a) creates a movement along the aggregate demand curve, leading people to purchase more goods and services b) creates a movement along the short-run aggregate supply curve, leading firms to produce fewer goods and services c) both of the above occurs d) causes the short-run aggregate supply curve to shift
both of the above occurs
During the Great Recession, the Federal Reserve supported the mortgage market by doing which of the following?: a) relaxing standards for sub-prime mortgages b) purchasing MBS c) lending to Fannie Mae and Freddie Mac d) raising mortgage interest rates
both purchasing MBS and lending to Fannie Mae and Freddie Mac
Which of the following fall during a recession?: a) both retail sales and employment b) retail sales but not employment c) employment but not retail sales d) neither employment nor retail sales
both retail sales and employment
When conducting an open-market purchase, the Fed: a) buys government bonds, and in so doing increases the money supply b) buys government bonds, and in so doing decreases the money supply c) sells government bonds, and in so doing increases the money supply d) sells government bonds, and in so doing decreases the money supply
buys government bonds, and in so doing increases the money supply
Which of the following data are about as volatile as real GDP?: a) consumption b) total investment c) residential investment d) fixed business investment
consumption
If inflation is higher than what was expected,: a) creditors receive a lower real interest rate than they had anticipated b) creditors pay a lower real interest rate than they had anticipated c) debtors receive a higher real interest rate than they had anticipated d) debtors pay a higher real interest rate than they had anticipated
creditors receive a lower real interest rate than they had anticipated
Monetary policy aims for maximum employment. That does NOT mean it aims for an unemployment rate of 0% because there are types of unemployment that cannot be changed by altering interest rates. Which of the following types of unemployment CAN monetary affect?: a) frictional b) cyclical c) structural d) seasonal
cyclical
Deflation is particularly bad for an economy because of all the following EXCEPT: a) spending is postponed b) higher interest rates c) deflations tend to spiral d) asset values decline, further lowering spending
higher interest rates
If inflation is lower than what was expected,: a) creditors receive a lower real interest rate than they had anticipated b) creditors pay a lower real interest rate than they had anticipated c) debtors receive a higher real interest rate than they had anticipated d) debtors pay a higher real interest rate than they had anticipated
debtors pay a higher real interest rate than they had anticipated
Other things the same, if the long-run aggregate supply curve shifts right, prices: a) and output both increase b) and output both decrease c) increase and output decreases d) decrease and output increases
decrease and output increases
Our largest trading partners are Canada and Mexico. Suppose that the U.S. goes into recession, how would that affect aggregate demand in Mexico and Canada?: a) decrease because U.S. imports of Mexican and Canadian goods would decline b) decrease because Mexican and Canadian would import less of U.S. goods c) increase because U.S. imports of Mexican and Canadian goods would decline d) stay the same because U.S. imports and U.S. exports would change by the same amount
decrease because U.S. imports of Mexican and Canadian goods would decline
Other things the same, if the price level rises, people: a) increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases b) increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases c) decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases d) decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases
decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases
Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level: a) decreases the real value of money b) increases the real value of the dollar in foreign exchange markets c) decreases the interest rate d) all of the above are correct
decreases the interest rate
The long-run aggregate curve shifts right if: a) either immigration from abroad increases or technology improves b) immigration from abroad increases, but not if technology improves c) technology improves, but not if immigration from abroad increases d) none of the above are correct
either immigration from abroad increases or technology improves
Which of the following shocks did NOT contribute to the Great Depression?: a) misguided monetary policy (i.e. raising interest rates) b) energy prices increased c) banking panics d) stock market crashed
energy prices increased
An increase in the interest rate causes investment to: a) rise and the exchange rate to appreciate b) fall and the exchange rate to depreciate c) rise and the exchange rate to depreciate d) fall and the exchange rate to appreciate
fall and the exchange rate to appreciate
If countries that imported goods and services from the U.S. went into recession, we would expect that U.S. net exports would: a) rise, making aggregate demand shift right b) rise, making aggregate demand shift left c) fall, making aggregate demand shift right d) fall, making aggregate demand shift left
fall, making aggregate demand shift left
During recessions, income: a) and unemployment both rise b) rises and unemployment falls c) falls and unemployment rises d) and unemployment both fall
falls and unemployment rises
During recessions, investment: a) falls by a larger percentage than GDP b) falls by about the same percentage as GDP c) falls by a smaller percentage than GDP d) falls, but the percentage change is sometimes much larger and sometimes much smaller
falls by a larger percentage than GDP
During recessions, employment typically: a) falls substantially. As the recession ends, employment rises rapidly. b) rises substantially. As the recession ends, employment declines gradually. c) falls substantially. As the recession ends, employment rises gradually. d) rises substantially. As the recession ends, employment declines rapidly
falls substantially. As the recession ends, employment rises gradually.
True or False: a cut in the corporate tax rate would lead most firms to spend the entire tax cut on new equipment
false
True or false: in most recessions, consumption spending is the component of spending that contributes to most of the decline in output
false
The idea of menu costs suggests that: a) firms alter prices less frequently as inflation increases b) firms alter prices more frequently as inflation increases c) firms always alter prices when costs increase d) firms alter prices as interest rates rise
firms alter prices more frequently as inflation increases
The menu cost reasoning for sticky prices includes all of the following concepts EXCEPT: a) the costs of changing prices will vary between businesses b) firms randomly change their prices in unpredictable timing c) because the costs and benefits of changing prices will vary between firms, different firms will change their prices at different times d) changing prices can be costly
firms randomly change their prices in unpredictable timing
Many macroeconomic variables: a) fluctuate together and by different amounts b) fluctuate together by the same amounts c) never fluctuate together d) fluctuate together about half of the time and by the same amount
fluctuate together and by different amounts
The components of spending are C, I, G, and NX. G stands for government purchases which do NOT include transfer payments. Which one the following is NOT a transfer payment: a) social security payments to retirees b) government pays the salary of military troops c) unemployment benefits to workers who have lost their jobs d) payments to low income individuals to support food purchases (colloquially known as food stamps)
government pays the salary of military troops
Aggregate demand shifts right if: a) government purchases increase and shifts left if stock prices rise b) government purchases increase and shifts left if stock prices fall c) government purchases decrease and shifts left if stock prices rise d) government purchases decrease and shifts left if stock prices fall
government purchases increase and shifts left if stock prices fall
Fiscal policy occurs when Congress and the President agree to change _____ or _____: a) government purchases, voting laws b) government purchases, regulations c) government purchases, taxes d) taxes, regulations
government purchases, taxes
The unconventional portion of fiscal policy occurred in 2008 and did which of the following: a) devoted $83 billion to infrastructure projects b) allocated $138 billion to health initiatives c) government took controlling shares of major investment banks and auto companies d) allocated $114 billion to education
government took controlling shares of major investment banks and auto companies
Which of the following would not be included in aggregate demand: a) an increase in firms' inventories b) purchases of goods by households c) firms' purchases of newly produced machinery d) government's tax collections
government's tax collections
The Board of Governors: a) is chaired by the U.S. Secretary of the Treasury b) members are elected by the U.S. public c) has 7 members d) all of the above are correct
has 7 members
If inflation were above the Federal Reserve's comfort zone, what action would the Federal Reserve take to curb inflation and what would be the impact on spending from that action?: a) increase interest rates to lower spending b) increase interest rates to increase spending c) lower interest rates to lower spending d) lower interest rates to increase spending
increase interest rates to lower spending
In response to a negative aggregate demand shock, monetary or fiscal policy may take action to try to do which of the following?: a) increase national spending and shift the aggregate demand curve to the right b) decrease national spending and shift the aggregate demand curve to the right c) decrease national spending and shift the aggregate demand curve to the left d) increase national spending and shift the aggregate demand curve to the left
increase national spending and shift the aggregate demand curve to the right
As long as tax rates are not very high, a decrease in tax rates will tend to: a) leave the budget deficit unchanged b) cause the budget deficit to first decrease then increase c) decrease the budget deficit d) increase the budget deficit
increase the budget deficit
Since the early 2000s, the U.S. net exports of services has _____ and U.S. net exports of goods has _____: a) increased, decreased b) decreased, increased c) increased, increased d) decreased, decreased
increased, decreased
When taxes decrease, consumption: a) decreases as shown by a movement to the left along a given aggregate-demand curve b) decreases as shown by a shift of the aggregate demand curve to the left c) increases as shown by a movement to the right along a given aggregate-demand curve d) increases as shown by a shift of the aggregate demand curve to the right
increases as shown by a shift of the aggregate demand curve to the right
Which component of spending was the largest contributing factor to the downturn in spending during the double-dip recession 1980 & 1982?: a) consumption b) investment c) government purchases d) net exports
investment
The model of aggregate demand and aggregate supply: a) is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships b) is different from the model of supply and demand for a particular market, in that we have to separate real and nominal variables in the aggregate model c) is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted d) is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted
is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships
If the Federal Reserve acted to lower the unemployment rate, the policy action would be to: a) lower interest rates b) increase interest rates c) do nothing to interest rates d) none of the above
lower interest rates
If the economy began at potential output when a negative aggregate demand shock hit, what would be the traditional monetary policy action to stabilize output?: a) increase interest rates to increase spending and shift the AD curve to the right b) lower interest rates to increase spending and shift the AD curve to the left c) lower interest rates to decrease spending and shift the AD curve to the left d) lower interest rates to increase spending and shift the AD curve to the right
lower interest rates to increase spending and shift the AD curve to the right
Sticky nominal wages can result in: a) lower profits for firms when the price level is lower than expected b) a decrease in real wages when the price level is lower than expected c) a short-run aggregate supply curve that is vertical d) a long-run aggregate supply curve that is upward-sloping
lower profits for firms when the price level is lower than expected
Which of the following is an example of government spending that falls into the mandatory category?: a) medicare payments b) salaries of state department employees c) foreign aid d) salaries of military troops
medicare payments
Which of the following would increase investment spending and shift the aggregate demand curve to the right?: a) increase in housing prices b) a decrease in the productivity of capital c) monetary policy action that lowered interest rates d) increase in stock market values
monetary policy action that lowered interest rates
The "double-dip" recession of 1980-1982 was deliberately created by ______ in order to ______: a) monetary policy, lower unemployment b) monetary policy, lower inflation c) fiscal policy, lower inflation d) fiscal policy, lower the deficit
monetary policy, lower inflation
During the Great Recession, the Federal Reserve took policy actions to support the commercial paper market. The commercial paper market is: a) whole sale purchases of printing paper b) investment bankers purchasing mortgages to securitize c) mutual stock fund managers purchasing corporate stocks d) money fund managers lending short-term to firms
money fund managers lending short-term to firms
Durable goods tend to change prices: a) unpredictably b) less frequently than non-durable goods c) about as frequent as non-durable goods d) more frequently than non-durable goods
more frequently than non-durable goods
Higher inflation makes relative prices: a) more variable, making it more likely that resources will be allocated to their best use b) more variable, making it less likely that resources will be allocated to their best use c) less variable, making it more likely that resources will be allocated to their best use d) less variable, making it less likely that resources will be allocated to their best use
more variable, making it less likely that resources will be allocated to their best use
When recessions are caused by aggregate demand shocks, the relationship between inflation and unemployment tends to be: a) circular b) positive c) negative d) ambiguous
negative
The TARP program during the Great Recession was billed as a "bailout" of major corporations. In reality, the program consisted of loans and purchases of equity. The net cost to taxpayers of this program was: a) about $100 billion b) negative- meaning that the government actually made a profit on the loans and equity purchases c) about $50 billion d) about $150 billion
negative-meaning that the government actually made a profit on the loans and equity purchases
When the Federal Reserve lowers interest rates, the money supply will: a) normally increase b) normally decrease c) fluctuate
normally increase
Using the available data suggests that on average, wages change about: a) once a month b) once every 3 months c) once a year d) once every two years
once a year
Suppose that Congress passes an investment tax credit that is sustained and eventually leads to a higher level of capital. At first _____, and over a longer period of time, the long-run aggregate supply curve will_____: a) only the long-run aggregate supply curve shifts and it shifts to the right, the long-run aggregate supply curve will shift to the right a bit more b) only the aggregate demand curve changes and it shifts to the left, remain c) only the long-run aggregate supply curve shifts and it shifts to the right, the long-run aggregate supply curve will return to its original position d) only the aggregate demand curve changes and it shifts to the right, also shifts to the right
only the aggregate demand curve changes and it shifts to the right, also shifts to the right
A decrease in the expected price level shifts: a) only the long-run aggregate supply curve right b) only the short-run aggregate supply curve right c) both the short-run and the long-run aggregate supply curve right d) neither the short-run nor the long-run aggregate supply curve right
only the short-run aggregate supply curve right
If the economy begins at an equilibrium at potential output, a negative aggregate demand shock has which of the following effects in the short-run?: a) output and prices decrease and unemployment rises above the natural rate b) output and prices increase and unemployment rises above the natural rate c) output and prices increase and unemployment falls below the natural rate d) output and prices decrease and unemployment falls below the natural rate
output and prices decrease and unemployment rises above the natural rate
If the economy begins at an equilibrium at potential output, a positive aggregate demand shock has which of the following effects in the short-run?: a) output and prices decrease and unemployment rises above the natural rate b) output and prices increase and unemployment falls below the natural rate c) output and prices decrease and unemployment falls below the natural rate d) output and prices increase and unemployment rises above the natural rate
output and prices increase and unemployment falls below the natural rate
If the economy begins at equilibrium at potential output, a negative short-run aggregate supply has which of the following effects in the short-run?: a) output increases, prices decrease, and unemployment falls below the natural rate b) output and prices increase and unemployment rises above the natural rate c) output and prices decrease and unemployment falls below the natural rate d) output decreases, prices increase, and unemployment rises above the natural rate
output decreases, prices increase, and unemployment rises above the natural rate
As the price level falls: a) people will want to hold more money, so the interest rate rises b) people will want to hold more money, so the interest rate falls c) people will want to hold less money, so the interest rate falls d) people will want to hold less money, so the interest rate rises
people will want to hold less money, so the interest rate falls
The long-run aggregate supply curve intersects the horizontal axis at _____ where the economy is operating at _____: a) potential output, full employment b) potential output, employment level greater than full employment c) potential output, employment level less than full employment d) an output level below potential output, employment level below full employment
potential output, full employment
Two major items shift the short-run aggregate supply curve without shifting the long-run aggregate supply curve. They are: a) price expectations and technology b) price expectations and economy-wide input costs c) technology and economy-wide input costs d) technology and physical capital
price expectations and economy-wide input costs
The Federal Reserve has a dual mandate. That means that its policy objectives must consider both: a) prices and employment b) prices and the exchange rate c) stock market values and employment d) the budget deficit and employment
prices and employment
The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,: a) production is more profitable and employment rises b) production is more profitable and employment falls c) production is less profitable and employment rises d) production is less profitable and employment falls
production is less profitable and employment falls
Quantitative easing occurs when the Federal Reserve: a) quantifies the degree to which its actions ease economic distress b) makes loans to investment banks c) changes the federal funds interest rate d) purchases longer term bonds to directly lower longer term interest rates
purchases longer term bonds to directly lower longer term interest rates
The aggregate-demand curve shows the: a) quantity of labor and other inputs that firms want to buy at each price level b) quantity of labor and other inputs that firms want to buy at each inflation rate c) quantity of domestically produced goods and services that households want to buy at each price level d) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level
quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level
The aggregate demand and aggregate supply graph has: a) quantity of output on the horizontal axis. Output can be measured by the GDP deflator. b) quantity of output on the horizontal axis. Output can be measured by real GDP. c) quantity of output on the vertical axis. Output can be measured by the GDP deflator. d) quantity of output on the vertical axis. Output can be measured by real GDP.
quantity of output on the horizontal axis. Output can be measured by real GDP.
During the Great Depression (prior to the New Deal) which of the following counterproductive measures was enacted by the federal government: a) increased government purchases b) raised taxes c) decreased taxes d) provided unemployment benefits
raised taxes
Using the CPI data from 1988-2009, the category of consumer goods that changes prices most frequently is: a) medical care b) education and communication c) recreation d) raw goods
raw goods
Which of the following is most commonly used to monitor short-run changes in economic activity?: a) the inflation rate b) real GDP c) interest rates d) value of the U.S. dollar in the foreign exchange market
real GDP
The classical dichotomy refers to the separation of: a) prices and nominal interest rates b) taxes and government spending c) decisions made by the public and decisions made by the government d) real and nominal variables
real and nominal variables
Economic variables we are most interested in are: a) real variables, but we usually observe nominal variables. b) nominal variables, but we usually observe real variables. c) real variables, which we usually observe. d) nominal variables, which we usually observe.
real variables, but we usually observe nominal variables.
When we say that economic fluctuations are "irregular and unpredictable," we mean that: a) the relationship between output and unemployment is erratic and difficult to characterize b) when one macroeconomic variable that measures income or spending is falling, other macroeconomic variables that measure income or spending are likely to be rising c) recessions do not occur at regular intervals d) all of the above are correct
recessions do not occur at regular intervals
The investment component of GDP measures spending on: a) financial assets such as stocks and bonds. During recessions it declines by a relatively large amount. b) residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount. c) financial assets such as stocks and bonds. During recessions is declines by a relatively small amount. d) residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively small amount
residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount.
As the price level rises, the exchange rate: a) falls, so exports rise and imports fall b) falls, so exports fall and imports rise c) rises, so exports rise and imports fall d) rises, so exports fall and imports rise
rises, so exports fall and imports rise
If the price level falls, the real value of a dollar: a) rises, so people will want to buy more b) rises, so people will want to buy less c) falls, so people will want to buy more d) falls, so people will want to buy less
rises, so people will want to buy more
Which of the following government spending categories falls into the discretionary category?: a) SNAP payments (supplemental nutrition assistance program, colloquially known as food stamps) b) medicaid payments c) salaries of employees of the Bureau for Economic Analysis d) social security payments
salaries of employees of the Bureau for Economic Analysis
When conducting an open-market sale, the Fed: a) buys government bonds, and in doing so increases the money supply b) buys government bonds, and in doing so decreases the money supply c) sells government bonds, and in doing so increases the money supply d) sells government bonds, and in so doing decreases the money supply
sells government bonds, and in so doing decreases the money supply
From about some time in the 1950s until about 2010, prime age male labor force participation declined. This would tend to: a) shift both the short-run and the long-run aggregate supply curves to the left b) shift both the short-run and the long-run aggregate supply curves to the right c) shift only the short-run aggregate supply curve to the left d) shift only the long-run aggregate supply curve to the left
shift both the short-run and the long-run aggregate supply curves to the left
Suppose the MPC= .5 when government purchases decrease by $200 billion. How much and in which direction would the aggregate demand curve shift as a result of the shock and all rounds of the multiplier process?: a) shift to the left by $100 billion b) shift to the left by $400 billion c) shift to the right by $200 billion d) shift to the left by $200 billion
shift to the left by $400 billion
Suppose the MPC= .75 when the stock market values increase causing consumption spending to increase by $50 billion. How much and in which direction would the aggregate demand curve shift as a result of the shock and all rounds of the multiplier process?: a) shift to the right by $200 billion b) shift to the left by $200 billion c) shift to the right by $50 billion d) shift to the right by $37.5 billion
shift to the right by $200 billion
If the economy is in a short-run equilibrium below potential output, then: a) since unemployment is high, there will be downward pressures on wages and price expectations, and eventually the short-run aggregate supply curve will shift down/right b) since unemployment is high, there will be upward pressure on wages and price expectations, and eventually the short-run aggregate supply curve will shift up/left c) since unemployment is low, there will be downward pressure on wages and price expectations, and eventually the short-run aggregate supply curve will shift down/right d) since unemployment is low, there will be upward pressure on wages and price expectations, and eventually the short-run aggregate supply curve will shift up/left
since unemployment is high, there will be downward pressure on wages and price expectations, and eventually the short-run aggregate supply curve will shift down/right
The aggregate demand is described graphically as: a) sloping downward b) a vertical line c) a horizontal line d) sloping upward
sloping downward
The income effect on labor supply is likely to be: a) small because regulations prevent people from entering the labor force b) large because most people can change labor supply on the intensive margin c) large because tax changes create significant labor supply changes at both the intensive and the extensive margin d) small because most people don't have the ability to change labor supply on the intensive margin
small because most people don't have the ability to change labor supply on the intensive margin
Investment is a: a) small part of real GDP, so it accounts for a small share of the fluctuation in real GDP. b) small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP. c) large part of real GDP, so it accounts for a large share of the fluctuation in real GDP. d) large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.
small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
Which of the following is NOT counted in the "G" component of spending?: a) the state government spends $100 million building a new section of highway b) the city government pays the salaries of teachers c) social security payments to retirees d) the federal government purchases three new military fighter planes
social security payments to retirees
In normal times, the Federal Reserve can make emergency loans to commercial banks, with short-term liquidity needs. During the Great Recession, the Federal Reserve also made loans to all of the following EXCEPT: a) investment banks b) state governments c) AIG d) Fannie Mae and Freddie Mac
state governments
Menu costs help explain: a) sticky-price theory b) misperceptions theory c) sticky-wage theory d) law of demand
sticky-price theory
An unexpected increase in the price level that temporarily lowers real wages and induces more employment and output in an economy, occurs in: a) nominal-supply theory b) stagflation c) misperceptions theory d) sticky-wage theory
sticky-wage theory
In order to understand how the economy works in the short run, we need to: a) study the classical model b) study a model in which real and nominal variables interact c) understand that "money is a veil" d) understand that money is neutral in the short run
study a model in which real and nominal variables interact
Which of the following shifts aggregate demand to the right?: a) Congress reduces purchases of new weapons systems b) the Fed buys bonds in the open market c) the price level falls d) Net exports fall
the Fed buys bonds in the open market
A change in investment spending can affect supply as well as demand. However, supply will not be affected if: a) the new equipment adds new technology b) if no additional workers are hired along with the new equipment c) the new equipment does not add new technology d) the new equipment simply replaces old capital
the new equipment simply replaces old capital
The model of short-run economic fluctuations focuses on: a) the price level and real GDP b) productivity and economic growth c) the neutrality of money and inflation d) none of the above is correct
the price level and real GDP
Which of the following adjust to bring aggregate supply and demand into balance?: a) the price level and real output b) the real rate of interest and the money supply c) government expenditures and taxes d) the saving rate and net exports
the price level and real output
The long-run aggregate supply curve is vertical because: a) the price level does not influence the level of potential output b) prices and potential output are positively related c) prices and potential output are negatively related d) when prices increase, so does technological progress
the price level does not influence the level of potential output
The aggregate demand and the aggregate supply graph has: a) the price level on the horizontal axis. The price level can be measured by the GDP deflator b) the price level on the horizontal axis. The price level can be measured by the GDP deflator c) the price level on the vertical axis. The price level can be measured by the GDP deflator. d) the price level on the vertical axis. The price level can be measured by GDP
the price level on the vertical axis. The price level can be measured by the GDP deflator.
A study from the Billion Prices Projects studied goods that are sold both in-store by Walmart and online by Amazon. The study found that: a) the prices of goods sold both in-store and online change price more frequently than goods sold only in-store b) more goods were sold in-store than online c) there was no difference in the frequency of price changes between goods sold both in-store and online change relative to goods sold only in-store d) the prices of goods sold only in-store changed price more frequently than goods sold both in-store and online
the prices of goods sold both in-store and online change price more frequently than goods sold only in-store
If there are sticky wages, and the price level is greater than what was expected, then: a) the quantity of aggregate goods and services supplied falls, which is shown by a shift of the short-run aggregate supply curve to the left b) the quantity of aggregate goods and services supplied falls, as shown by a movement to the left along the short-run aggregate supply curve c) the quantity of aggregate goods and services supplied rises, as shown by a shift of the short-run aggregate supply curve to the right d) the quantity of aggregate goods and services supplied rises, as shown by a movement to the right along the short-run aggregate supply curve
the quantity of aggregate goods and services supplied rises, as shown by a movement to the right along the short-run aggregate supply curve
Aggregate demand includes: a) only the quantity of goods and services households want to buy b) only the quantity of goods and services households and firms want to buy c) only the quantity of goods and services households, firms, and the government want to buy d) the quantity of goods and services households, firms, the government, and customers abroad want to buy
the quantity of goods and services households, firms, the government, and customers abroad want to buy
If the actual price level is 165, but people had been expecting it to be 160, then: a) the quantity of output supplied rises, but only in the short run b) the quantity of output supplied rises in the short run and the long run c) the quantity of output supplied falls, but only in the short run d) the quantity of output supplied falls in the short run and the long run
the quantity of output supplied rises, but only in the short run
When looking at a graph of aggregate demand, which of the following is correct?: a) there are nominal variables on both the vertical and the horizontal axes. b) there are real variables on both the vertical and horizontal axes. c) the variable on the vertical axis is nominal; the variable on the horizontal axis is real d) the variable on the vertical axis is real; the variable on the horizontal axis is nominal
the variable on the vertical axis is nominal; the variable on the horizontal axis is real
Within the aggregate supply and aggregate demand model if the actual price level was higher than the short-run equilibrium price level, then which of the following would occur: a) there would be an excess demand and eventually the price level would decline to the equilibrium price b) there would be an excess supply and eventually the price level would rise to the equilibrium price c) there would be an excess supply and the aggregate supply curve would shift to create a new equilibrium d) there would be excess supply and eventually the price level would decline to the equilibrium price
there would be excess supply and eventually the price level would decline to the equilibrium price
The logic of the multiplier effect applies: a) only to changes in government spending b) to any change in spending on any component of GDP c) only to changes in the money supply d) only when the crowding-out effect is sufficiently strong
to any change in spending on any component of GDP
True or False: price expectations can affect wages because when employers and employees expect higher prices, workers will bargain for higher wages and employers are more likely to agree to higher wages
true
If the economy is in short-run equilibrium below potential output, then: a) the economy is operating at full employment b) unemployment is low (employment is above full employment) c) unemployment is high (employment is below full employment) d) not enough information is given to determine whether the economy is operating above or below full employment
unemployment is high (employment is below full employment)
The data also indicates that wages tend to be downward rigid. This means that: a) wage declines are infrequent b) people are rigid when reporting wages c) wages adjust slowly in both directions d) wage increases are infrequent
wage declines are infrequent
Which of the following is not counted in investment spending: a) you purchase a newly constructed house b) a craft brewery business purchases new vats c) you purchase a computer d) a computer software firm purchases a computer
you purchase a computer
