FINAL ECON

Aggregate expenditure is the sum of:

consumption, planned investment, government expenditure, and net exports.

A bank run occurs when:

many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.

When prices rise in the United States, what is the effect on consumption and aggregate expenditure?

The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.

On which of the following is there a tax incentive in the United States? (i) health insurance purchased through employers (ii) employer contributions for life insurance (iii) rental value on owner-occupied housing (iv) your mortgage

(i), (iii), and (iv)

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer?

927.35

You are sitting at your desk in your new job as the Chair of the Federal Reserve Bank of the United States. The interest rate where potential GDP meets real GDP is 2%, the inflation rate is 1%, and the output gap is -1%. What is the appropriate new nominal federal funds rate that you should set for the economy?

1.5%

What was the Fed's inflation target in 2019?

2%

Suppose that the Kenyan government engages in expansionary fiscal policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?

AGG supply increase to the right

What is the floor framework that the Federal Reserve uses to influence the federal funds rate?

The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go

The Affordable Care Act is an example of:

executive order

In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes.

expansionary, raise, lowers

If the output gap is positive, the Federal Reserve will _____ the real interest rate to _____.

raise; cool inflationary pressures

The higher the GDP deflator in an economy, the: (i) higher the purchasing power of the currency .(ii) lower the real wealth in the economy. (iii) higher the real wealth in an economy. (iv) more expensive the country's exports.

(ii) and (iv)

The standard deduction for a single person is $12,200. Based on this table, if your total income is $84,200, what is the amount of tax you will pay on your taxable income?

11699

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is -0.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

2%

In 2016, worries about the stock market caused consumer confidence in Asia to fall. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?

Old AD lines moves to the left

Contractionary monetary policy causes a:

left shift of the aggregate demand curve.

If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to:

lower nominal wages by 1%.

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be:

lower than the neutral interest rate.

If the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

lower; up

When gov expenditure rises by 180 million and the initial increase in government expenditure was 60 million, then the multiplier is

3.

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $665, approximately how much will you get after these deductions?

604.48

Which of the following is a reason to worry about government debt?

High and rising debt slows economic growth.

Why is the discount rate the upper bound for the federal funds rate?

It is set higher than the federal funds rate.

Why don't most tax expenditures help much if your federal tax bill is zero?

Most tax breaks reduce taxable income, but reducing taxable incomebelow zero does not reduce the tax bill

The stock market rises consistently and reaches a record high. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

Old AD increases to the right

Consider the following graph. One of the reasons that government spending rose during the 2007 to 2009 period was the introduction of:

The afordable care act

You have saved $747. Where should you go if you want to open a checking account?

a commercial bank

A debt crisis occurs when:

a government cannot repay its loans.

Which of the following changes will lead to a decrease in the price level but an increase in the quantity of output in an economy?

a rise in aggregate supply

The Federal Reserve was created after:

a series of bank runs and bankruptcies.

Monetary policy is defined as the:

adjustment of interest rates to influence economic conditions.

Suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. Who gets the largest tax benefit?

high income

Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand.

increases; boosts; raises

A previously enacted steel tariff is removed. Which of the graphs shows the correct effect on the AD-AS framework for the country exporting steel?

old AD, decreases and moves to the left

Ceteris paribus, a decrease in imports leads to a:

right shift of the aggregate demand curve.

When the government increases spending, a multiplier effect will:

shift the AD curve further to the right than the effect of the spending.

What is a reserve requirement?

the minimum amount of reserves that each bank must hold

Which of the following did the New Deal create?

unemployment benefits

If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then:

real wages have fallen by 2.5%.

Fiscal policy is increased in its effectiveness through:

The multiplier effect

Fiscal policy works best when it is:

Timely, Targeted and temporary

Forward guidance occurs when the Federal Reserve:

provides information about the future course of monetary policy in order to influence expectations about future interest rates.

You are the manager of a local bank. Due to unstable financial conditions, savers are worried that your bank may fail. When they show up in large numbers to withdraw their savings, you find that you do not have enough cash to meet the obligations. Where can you turn for a loan if no other bank will lend to you?

The discount window

The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of:

social insurance

In the AD-AS framework, price and quantity are represented by _____, respectively.

the GDP deflator and the real GDP

Minimum wages rise sharply in the economy. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?

Old AS decreases to the left

With a progressive tax, those with _____ income tend to pay a _____.

more; higher share of their income in taxes

When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure?

Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure.

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper?

Prices decrease, and GDP increases.

A rise in prices leads to a

movement up and to the left, along the same aggregrate demand curve

If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

raise; down

If the output gap is positive, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy.

raise; upward; decrease

Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand.

raises; lowers; decreases; lowers

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand?

All prices adjust, and the economy returns to long-run potential.

The Federal Reserve's lender-of-last-resort function has been curtailed over time by the:

Dodd-Frank Act.

Which of the following services are provided by local government?

bus services

A budget deficit occurs when:

government spending exceeds government revenue.