Exam 3/ Final Exam

A change in the price level produces an immediate shift of the short-run aggregate supply curve. Select one: True False

false

In open market operations, the Federal Reserve buys and sells gold on the open market to preserve the value of the dollar. Select one: True False

false

In the long run, real output can be less than, equal to, or greater than the economy's potential output. Select one: True False

false

In the short run, all prices are flexible. Select one: True False

false

Increased productivity causes the aggregate supply curve to shift to the left. Select one: True False

false

Inflationary and recessionary gaps are always eliminated automatically through changes in aggregate demand. Select one: True False

false

The concept of the vertical long-run aggregate supply curve is inconsistent with the classical model. Select one: True False

false

The target for the federal funds rate is set by the federal government. Select one: True False

false

When the Federal Reserve increases the discount rate, it is called expansionary monetary policy. Select one: True False

false

The Chair of the Board of Governors is appointed for a _____ renewable term. Select one: a. 4-year b. 6-year c. 8-year d. 12-year

a. 4-year

A change in the price level, all other things unchanged, causes Select one: a. a movement along the aggregate demand curve. b. a shift of the aggregate demand curve. c. both a movement along the aggregate demand curve and a shift in the curve. d. no change in the value of assets held in the form of money.

a. a movement along the aggregate demand curve.

The capital-to-labor ratio is: Select one: a. high in rich countries. b. high in poor countries. c. a key element in decreasing real wages. d. the ratio of managers to workers.

a. high in rich countries.

The short run in macroeconomic analysis is a period Select one: a. in which wages and some other prices do not respond to changes in economic conditions. b. in which full wage and price flexibility and market adjustment have been achieved. c. of less than 12 months. d. in which all macroeconomic variables are fixed.

a. in which wages and some other prices do not respond to changes in economic conditions.

Which of the following increases productivity? Select one: a. increased skills in the labor force b. young labor force c. poorly educated labor force d. large labor force

a. increased skills in the labor force

Increases in _____ often lead to economic growth. Select one: a. technology b. public goods c. the money supply d. government regulations

a. technology

Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift Select one: a. the SRAS curve. b. the AD curve. c. the LRAS curve. d. both the SRAS and the LRAS curves.

a. the SRAS curve.

The Federal Reserve System was established in: Select one: a. 1865. b. 1913. c. 1933. d. 1946.

b. 1913.

If the growth rate in an economy is 3.5%, then its GDP will double in about: Select one: a. 3.5 years b. 20 years c. 30 years d. 72 years

b. 20 years (rule of 70)

Which of the following would be an example of a situation associated with short-run economic growth? Select one: a. Firms purchase 5,000 additional conveyor belts to use in factories. b. A country reports that employment rises by 200,000 workers, reducing the unemployment rate. c. The average education level in a country rises from 10 years to 11 years of schooling. d. A new hybrid variety of a crop is produced that has a yield 20% higher than before.

b. A country reports that employment rises by 200,000 workers, reducing the unemployment rate.

Which of the following statements is NOT true? Select one: a. Economic growth leads to lower poverty rates. b. Economic growth always leads to a more equitable distribution of income. c. Economic growth leads to longer life expectancy. d. Economic growth leads to increased consumption of goods and services.

b. Economic growth always leads to a more equitable distribution of income.

The long run in macroeconomic analysis is a period Select one: a. in which wages and some other prices are sticky. b. in which full wage and price flexibility and market adjustment have been achieved. c. greater than 12 months. d. in which the capital stock is held constant.

b. in which full wage and price flexibility and market adjustment have been achieved.

The Federal Reserve's Board of Governors consists of _____ members who are appointed by the _____ and confirmed by the _____. Select one: a. five; President; Senate b. seven; President; Senate c. seven; Senate; President d. twelve; Congress; President

b. seven; President; Senate

Suppose households become more future-oriented and decide to save more at each income level. All other things unchanged, this will Select one: a. shift the aggregate demand curve to the right. b. shift the aggregate demand curve to the left. c. not affect aggregate but rather aggregate supply because firms will now produce less. d. shift both the aggregate demand curve and the aggregate supply curve to the left.

b. shift the aggregate demand curve to the left.

Potential output is Select one: a. the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment. b. the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded. c. the level of real GDP that exists when the actual rate of unemployment is zero. d. the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment.

b. the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded.

Government funding of Los Alamos National Labs is an example of government acting in its role to promote economic growth by: Select one: a. ensuring a stable legal system. b. enhancing physical and human capital. c. ensuring a stable and secure financial system. d. promoting free and competitive markets.

b. enhancing physical and human capital.

Malthus believed that population increased _____ and food resources increased _____. Select one: a. arithmetically; geometrically b. geometrically; arithmetically c. irresponsibly; economically d. meagerly; substantially

b. geometrically; arithmetically

Which government policy would provide an incentive for research and development of new technologies? Select one: a. a program providing a tax break for saving towards retirement b. patents for inventors that provide temporary ownership rights for inventions c. a new electrical power plant funded through tax monies d. a legal system that helps enforce contracts

b. patents for inventors that provide temporary ownership rights for inventions

The relationship between economic freedom and per capita GDP is: Select one: a. negative. b. positive. c. negative for advanced economies and positive for developing economies. d. positive for advanced economies and negative for developing economies.

b. positive.

In the long run, the output level is determined by Select one: a. aggregate demand b. long-run aggregate supply c. the government d. household income

b. long-run aggregate supply

Suppose a bank has $1 million in deposits, a reserve requirement of 20%, and bank reserves of $400,000. The bank has excess reserves of: Select one: a. $50,000. b. $100,000. c. $200,000. d. $300,000.

c. $200,000.

Which statement about long-run economic growth is true? Select one: a. It occurs when an economy makes use of underutilized resources. b. It is easier to achieve than short-run economic growth. c. It is likely to occur when the capacity to produce goods and services increases. d. It is likely to occur when obstacles preventing resources from being used are reduced.

c. It is likely to occur when the capacity to produce goods and services increases.

Which of the following factors is NOT generally viewed by economists as critical to economic growth? Select one: a. strong and fair legal system b. stable monetary system c. access to large amounts of natural resources d. economic freedom

c. access to large amounts of natural resources

When the Federal Reserve increases excess reserves to reduce interest rates and stimulate spending, it is said to engage in: Select one: a. tight money policy. b. expansionary fiscal policy. c. expansionary monetary policy. d. restrictive policy.

c. expansionary monetary policy.

The Federal Open Market Committee: Select one: a. is independent of the Board of Governors. b. is composed of all the regional bank presidents. c. is composed of the Board of Governors and five other regional Reserve Bank presidents. d. None of the answers is correct.

c. is composed of the Board of Governors and five other regional Reserve Bank presidents.

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of Select one: a. the aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves. b. the short-run aggregate supply and the long-run aggregate supply curves. c. the aggregate demand and the short-run aggregate supply curves. d. the aggregate demand and the long-run aggregate supply curves.

c. the aggregate demand and the short-run aggregate supply curves.

In which situation is a country LEAST likely to be producing on its production possibilities curve? Select one: a. The average education level is of the fourth grade. b. The land is dry and has low productivity in farming. c. There are legal disputes of the ownership of 15% of the factory buildings in the country. d. There are large legal penalties for breaking a contract.

c. There are legal disputes of the ownership of 15% of the factory buildings in the country.

Infrastructure is defined as a country's: Select one: a. private stock of capital. b. investment in human capital. c. public capital. d. financial capital.

c. public capital.

Which of the following items is NOT an example of investment in human capital? Select one: a. policy of universal education b. on-the-job training c. acquisition of obsolete skills d. apprenticeship

c. acquisition of obsolete skills

If the reserve requirement is 2.5% and a bank initially receives $30,000 in deposits from the Fed, then the maximum amount of money that the banking system can create is: Select one: a. $750. b. $1,500. c. $30,000. d. $1.2 million.

d. $1.2 million.

What are the four sources of aggregate demand? Select one: a. Consumption, private investment, taxes, and expenditures b. Consumption, private investment, wage increases, and government expenditures c. Consumption, private investment, expenditures, and net exports d. Consumption, private investment, government purchases, and net exports

d. Consumption, private investment, government purchases, and net exports

Suppose the price of an important natural resource such as oil falls. What will be the effect on the short-run aggregate supply curve? Select one: a. There will be movement to the left, along the aggregate supply curve. b. The aggregate supply curve will shift to the left. c. There will be movement to the right, along the aggregate supply curve. d. The aggregate supply curve will shift to the right.

d. The aggregate supply curve will shift to the right.

The 12 Federal Reserve banks and their branches do all of the following EXCEPT: Select one: a. distribute coins and currency. b. regulate and supervise member banks. c. serve as a banker for the U.S. Treasury. d. accept deposits from U.S. citizens.

d. accept deposits from U.S. citizens.

A movement along the short-run aggregate supply curve in response to a change in the price level is called a Select one: a. determinant of aggregate supply b. revealed cost on aggregate supply c. change in aggregate supply d. change in the aggregate quantity of goods and services supplied.

d. change in the aggregate quantity of goods and services supplied.

The ability to use physical resources in creative ways to produce goods and services is known as: Select one: a. labor. b. natural resources. c. physical capital. d. entrepreneurial ability, technology, and ideas.

d. entrepreneurial ability, technology, and ideas.

In times of economic downturn, the Federal Reserve will engage in _____ monetary policy by _____ bonds. Select one: a. contractionary; buying b. contractionary; selling c. expansionary; selling d. expansionary; buying

d. expansionary; buying

The _____ rate is the rate at which banks charge each other for overnight loans, while the _____ rate is the rate at which regional Federal Reserve banks charge depository institutions for short-term loans. Select one: a. bank prime; discount b. discount; federal funds c. bank prime; federal funds d. federal funds; discount

d. federal funds; discount

The national economic objectives that the Fed attempts to achieve include all the following actions EXCEPT: Select one: a. promoting economic growth accompanied by full employment. b. maintaining moderate long-term interest rates. c. keeping the price level stable. d. keeping tax rates low.

d. keeping tax rates low.

The central bank of the United States is: Select one: a. the Treasury. b. the Congressional Budget Office. c. the Internal Revenue Service. d. the Federal Reserve System.

d. the Federal Reserve System.

Which of the following is a source of increases in productivity? Select one: a. research and development b. improvements in labor quality c. capital investment d. All of the answers are correct.

d. All of the answers are correct.

Which of the following resources is an example of infrastructure? Select one: a. a computer manufacturing plant b. a coal mine c. a newly drained swamp d. an elementary school

d. an elementary school

The capital-to-labor ratio measures: Select one: a. the average number of hours worked. b. the financial resources of a company divided by the number of employees. c. the rate of technological improvement. d. the amount of economic capital per worker.

d. the amount of economic capital per worker.

If a country has a low capital-to-labor ratio, then it tends to have: Select one: a. low labor productivity but high wages. b. high labor productivity but low wages. c. high labor productivity and high wages. d. low labor productivity and low wages.

d. low labor productivity and low wages.

During the 20072009 financial crisis, the Federal Reserve bought bad debt in order to stabilize banks. Select one: True False

true

If a bank does not have enough funds in reserves, it can borrow through either the federal funds market or the discount window. Select one: True False

true

If an economy is in long-run equilibrium, it is also in short-run equilibrium. Select one: True False

true

John Maynard Keynes's analysis was based on an economy whose resources were underutilized. Select one: True False

true

Public policy to eliminate inflationary or recessionary gaps is called stabilization policy. Select one: True False

true

Quantitative easing occurred when the Fed purchased bank debt, mortgage-backed securities, and long-term Treasury notes with money it created electronically. Select one: True False

true

Taking no action and allowing an economy to adjust by itself is called a nonintervention policy. Select one: True False

true

The Fed works independently of political parties. Select one: True False

true

The Federal Reserve's inflation target is typically 2%. Select one: True False

true

The aggregate demand curve shifts when the quantity of real GDP demanded at every price level changes. Select one: True False

true

The collapse of housing prices in 2006-2011 caused aggregate demand to fall when homeowners increased their savings to offset the drop in the value of their homes. Select one: True False

true

The discount window or discount rate gives banks a buffer in the reserves market against unexpected day-to-day fluctuations in the demand and supply of reserves. Select one: True False

true

The long run in macroeconomics is a period in which wages and prices are flexible and there is full market adjustment. Select one: True False

true

The long-run aggregate supply curve is vertical at the level of real output that corresponds to the natural rate of employment. Select one: True False

true

The target federal funds rate is the Fed's primary approach to monetary policy. Select one: True False

true

When the Open Market Committee buys $1 million worth of bonds, $1 million of reserves is instantly put into the banking system. Select one: True False

true