Exam

(THIS IS ON THE TEST) Suppose that the US has a national debt of $25 trillion. The Federal government agencies hold a debt of $6 trillion, Americans and foreigners hold $12 trillion and $7 trillion in bonds. Then, the public debt is equal to * $12 trillion * $18 trillion * $19 trillion * $25 trillion

$19 trillion

(THIS IS ON THE TEST) According to the New York Times (Mar. 23, 2023) entitled "Canada Hits Record Population Growth Through Immigration", Canada grew by over 1 million people last year as the federal government pushes more immigration and the Canadian government's ambitious goal of boosting immigration will continue over the next three years. Other things being equal, what would be the effect of this policy on the economy of Canada in the long run? A. The price level falls and output rises. B. The price level and output both rise. C. The price level increases but output falls. D. The price level and output both fall.

A

During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose: A. aggregate supply fell and the aggregate price level rose B. both aggregate supply and the aggregate price level fell. C. both aggregate demand and the aggregate price level fell. D. both aggregate demand and the aggregate price level rose.

A

For a given expected profitability, investment spending will increase when there is__________. A. a high capital utilization B. a decrease in expected future prices C. an increase in interest rate D. a jump in stock prices

A

If there is a large increase in income in Canada, the largest trading partner of the US, then how would it affect the short run equilibrium price level and real GDP of the US? A. Both the price level and real GDP would increase in the US. B. Both the price level and real GDP would fall in the US. C. The price level increases and real GDP falls in the US. D. The price level decreases and real GDP increases in the US.

A

Suppose the government raises income taxes, so consumers have less take-home pay. This policy action will cause a(n) in the price level and in output. A. decrease; decrease B.increase; increase C. no change; no change D. increase; decrease

A

Which of the following does NOT decrease the long-run aggregate supply in China? A. Due to the reversal of the one-child policy the size of the labor force increases. B. China experiences a wave of emigration of workers to foreign countries. \ C. A wave of natural disasters destroys production facilities along the eastern part of China. D. All of the above will decrease the long-run aggregate supply in China.

A

(THIS IS ON THE TEST) According to the interest rate effect, increasing prices in an economy cause people to borrow money and thus_____interest rates, resulting in a(n)_____in aggregate demand. A. more; less; increase B. more; raise; decrease C less; lower; increase D. less; lower; decrease

B

(THIS IS ON THE TEST) In the short run, it is assumed that all the input prices are______adjusted to actual price changes. Then, when the price level increases, the profit to producers would______and thus the aggregate supply curve is_____in the short run. A. sluggishly; be unchanged; vertical B. sluggishly; increase; upward sloping C. fully; increase; upward sloping D. fully; be unchanged; vertical

B

Suppose new technologies increase the expected return on investment spending. Then, the aggregate demand curve shifts to the output demanded. A. left; decreasing B. right; increasing C. left; increasing D. right; decreasing

B

Which of the following would contribute to demand-pull inflation? A. Expectation of a decrease in future prices B. Low interest rates C. Higher income taxes D. Higher prices of raw materials E. All of the above

B

"The Hong Kong government is handing out $1,300 to all the residents to spend as it tries to save its slumping economy from the aftermath of protests and the coronavirus outbreak." Suppose that the marginal propensity to consume (MPC) is 0.8 in Hong Kong. Then, with an extra income of $1,300 each resident in Hong Kong received would increase consumption spending by_____ and saving by_____. A. $1,170; $130 B. $1,300: $0 C. $1,040; $260 D. $975; $325

C

(THIS IS ON THE TEST) If the marginal propensity to consume in the US is 0.90, when Huyndai of America builds a plant to produce electric cars in Alabama that costs $20 billion, the equilibrium income in the US: A. increases by $18 billion. B. increases by $20 billion. C. increases by $200 billion. D. increases by $180 billion.

C

5. Which of these would NOT cause a shift in the aggregate demand curve? A. a stock market crash B. a decrease in interest rates C. an increase in productivity D. an increase in government spending on infrastructure

C

"The US Congress passed a significant tax cut in December 2017 when the US economy was at full employment level of output." Then, as a result of the tax cut, the output would_______ in the short run and_______starting point in the long run from its A. remain unchanged; decrease B. remain unchanged; increase C. increase; increase D. increase; remain unchanged

D

If the price level in the US falls relative to other countries, then the US will export____goods and services and import_____, resulting in a(n)_____ in the net exports of US goods and services that are demanded. A. more; more; no change B. less; more; decrease C. less; less; no change D. more; less; increase

D

The idea that new spending creates more new spending is known as the: A. crowding-out effect. B.interest rate effect. C. wealth effect. D. multiplier effect.

D

What was the main policy recommendation suggested by Keynes to stimulate the economy during the Great Depression? A. a decrease in imports B. tax reduction. C. raising exports. D. an increase in government spending.

D

What is the most likely reason why investors would choose to put their money into an investment with higher risk rather than one with lower risk? * They are irrational. * A large portion of investments with high risk is insured * Riskier investments typically have higher returns. * Riskier investments are bailed out by the government if they fail.

They are irrational.

Which one of the following is NOT included in the "narrow" money in the U.S. today? * $2 million cash held by firms * A 20 dollar bill in your wallet * A balance of 2500 in your checking account *Your Visa credit card *A and D

Your Visa credit card

Expansionary fiscal policy is typically used to: -combat inflation stemming from an overheated economy. - balance the federal budget. - combat a recession due to deficient demand. - decrease trade deficits.

combat a recession due to deficient demand.

(THIS IS ON THE TEST) Reducing government spending, reducing transfer payments, or raising taxes describes which policy? * automatic stabilizers * monetary policy * contractionary fiscal policy * expansionary fiscal policy

contractionary fiscal policy

If the economy is producing at an output level above full employment, the government should implement a(n) fiscal policy by A. expansionary; cutting taxes B. expansionary; reducing its spending C. contractionary; raising taxes D. contractionary; increasing its spending

contractionary; raising taxes

Which of these is NOT a primary role of financial intermediaries in the market for funds? * controlling money supply. * reducing transaction costs of matching lenders with borrowers * reducing information costs associated with lending money. * pooling risk & * All of the above are the primary role of financial intermediaries.

controlling money supply.

The Republic of Orthodox requires the central government to balance the budget. Then, when the economy of the Republic falls into a recession, the resulting decrease in tax revenue requires the government to______leading to_________ * increase spending; an expansion of the economy * cut spending; a deeper economic recession * cut taxes; an increase in inflation * increase taxes; a decrease in unemployment

cut spending; a deeper economic recession

(THIS IS ON THE TEST) In 1962, President Kennedy implemented a 7 percent investment tax credit on business investment. The tax credit effectively reduced the cost of new equipment by 7 percent. Then, other things being equal, in the market for loanable funds, _ for (of) loanable funds would , and thus the interest rates would * demand; rise; rise * supply; rise; fall * supply; rise; rise * demand; fall; rise

demand; rise; rise

The goal of supply-side fiscal policy is to increase the potential GDP. If the policy works, then the total output would_______ and the price level would_______ A. increase; fall B. decrease; decrease 7 (C) C. increase; increase D. be unchanged; fall

increase; fall

According to the crowding-out effect, an increase in government budget deficits would interest rates thus private sector spending * raise, reduces * fall, increases * fall, decreases * raise, increases

raise, reduces

Assume an economy has a progressive income tax structure. Then in a period of fast economic expansion, we would expect tax revenues to______ and thus the government budget deficits would______ * rise; increase * rise; decrease * fall; increase * fall; increase

rise; decrease

(THIS IS ON THE TEST) Suppose a bond with a face value of $1,000 has an 8% coupon rate. If market interest rates fall to 6%, the price of the bond: * rises to $1,667. * falls to $600. * rises to $1,333. * stays at $12,500.

rises to $1,333.

If the economic outlook deteriorates, households reduce their spending. Then, other things being equal, the of loanable funds will _ resulting in a(n) in interest rates. A. supply; increase; decrease B. supply; fall; increase C. demand; fall; decrease D. supply; fall; increase

supply; increase; decrease

15. The primary tools of fiscal policy are: * low inflation and high growth. * taxation and government spending. * interest rates and regulation. * discretionary spending and mandatory spending.

taxation and government spending.

Suppose that last month, the equilibrium real interest rate was 3% and the quantity of loanable funds was $400 billion, and this month, the equilibrium real interest rate is 4% and the quantity of loanable funds is $500 billion. What could have caused these changes in the equilibrium to occur? * a fall in asset prices that decrease people's wealth * a change in the tax law providing greater incentives to save x * a housing boom that encourages developers to borrow more to fund investments * a strong economic activity that increases the government tax revenue decreasing the budget deficits.

a housing boom that encourages developers to borrow more to fund investments

Expecting a major financial crisis, people in the US hold more cash by withdrawing money from their savings accounts. As a result, M1 will decrease. True or false?

False

Which of the following is an example of an automatic stabilizer? A. Consumers spend more when the economy is strong. B. J Businesses lay one workers during a recession. C. Government spending on unemployment benefits falls during an economic boom. D. All of the above

Government spending on unemployment benefits falls during an economic boom.

Which of the following programs is considered discretionary government spending? * Social Security. * National defense. * Medicare * Interest on the national debt. * None of the above

National defense

Define three functions of money

Store value Unit of account A medium of exchange