final quiz macro

During a recessionary gap: a) holding everything else constant, the budget deficit would increase. b) unemployment would most likely be falling. c) contractionary fiscal policy would help correct this problem. d) an increase in taxes or a decrease in government purchases would shift the AD curve to the right.

A

Expansionary fiscal policy includes: a) decreasing taxes. b) increasing the money supply. c) decreasing government expenditures. d) increasing taxes.

A

If the natural rate of unemployment is 5% and the actual rate of unemployment is 4%: a) inflation will increase. b) disinflation is likely to occur. Incorrect Response c) there will be no effect on prices. d) the short-run Phillips curve will shift down.

A

Included in the M1 definition of money are: a) checkable bank deposits. b) demand deposits, savings deposits, and U.S. Treasury bills. c) U.S. Treasury bills. d) savings deposits.

A

The federal funds rate is the interest rate at which: a) banks borrow from other banks with excess reserves. b) the influential companies borrow from banks. Incorrect Response c) banks borrow funds directly from the Federal Reserve. d) households' savings are invested in the Federal Reserve.

A

The largest source of federal tax revenues is: a) personal income taxes. b) corporate income taxes. c) sales taxes. d) property taxes.

A

Which of the following financial assets belongs to M2 but not to M1? a) a savings account b) currency c) a checkable deposit d) travelers' checks

A

Which of the following is likely to be TRUE if actual output is equal to potential output? Correct Response a) The actual unemployment rate is equal to the natural rate of unemployment. b) The actual unemployment rate is above the natural rate of unemployment. c) The natural rate of unemployment will be above the actual unemployment rate. d) There will be zero percent unemployment.

A

Which of the following was not one of the powers granted to the Federal Reserve when it was created in 1913? a) the power to prepare the federal budget b) the power to issue currency c) the power to inspect banks d) the power to require banks to hold reserves

A

A trade-off between unemployment and inflation is depicted by: a) the Friedman curve. b) the Phillips curve. c) the multiplier. d) Keynes's law.

B

An increase in expected inflation will affect the short-run Phillips curve: a) by shifting it downward; the actual rate of inflation at any given unemployment rate will fall by the same amount. b) by shifting it upward, as a result the actual rate of inflation at any given unemployment rate will also be higher when the expected inflation rate is higher. c) by moving along the same curve, where it equals the actual rate of inflation. d) only if the economy is at the nonaccelerating inflation rate of unemployment.

B

An increase in government transfers is an example of ________ because it ________. a) contractionary fiscal policy; shifts the aggregate demand curve to the left, decreasing aggregate output b) expansionary fiscal policy; shifts the aggregate demand curve to the right, increasing aggregate output c) expansionary fiscal policy; shifts the aggregate demand curve to the left, increasing aggregate output d) contractionary fiscal policy; shifts the aggregate demand curve to the right, decreasing aggregate output

B

Consider the following statements. Which one is correct? a) Discretionary fiscal policy shows automatic adjustments without any specific effort by policy makers. b) Discretionary fiscal policy indicates deliberate action by policy makers. c) Automatic stabilizers are risky to use and sometimes can get the economy destabilized. d) Automatic stabilizers indicate deliberate action by policy makers.

B

When government spending results in persistent deficits that necessitate borrowing, thereby leading to a reduction in private investment, it is referred to as: a) implicit liabilities. b) crowding out. c) automatic stabilizers. d) transfer payments.

B

When the unemployment rate increases, the budget: a) tends to move into a surplus. b) tends to move into deficit. c) remains neutral. d) is unaffected.

B

A contractionary fiscal policy is one that: a) reduces aggregate demand by decreasing taxes. b) reduces aggregate demand by decreasing money supply. c) reduces aggregate demand by decreasing government purchases. d) reduces aggregate demand by decreasing interest rates.

C

An inflationary gap can be closed with: a) a decrease in taxes. b) expansionary fiscal policy. c) a decrease in government purchases. d) expansionary monetary policy.

C

In 1958, which of the following economists came up with a theory regarding the trade-off between unemployment and inflation? a) John Maynard Keynes b) Joseph Schumpeter Correct Response c) A. W. Phillips d) Milton Friedman

C

Suppose inflationary expectations increase due to a rising inflation rate. The Phillips curve will: a) show a movement along the same curve. b) not be affected at all. c) shift up. d) shift down.

C

Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000. Which of the following would be necessary to close this inflationary gap if the marginal propensity to consume is 0.75? a) raise taxes by $400 billion b) increase spending by $100 billion c) Decrease spending by $100 billion d) increase spending by $400 billion

C

According to the Phillips curve, when actual real GDP is _________ potential output, the price level _________ and the unemployment rate falls. Incorrect Response a) above; decreases b) below; decreases c) below; increases d) above; increases

D

According to the liquidity preference model, a _________ in the money supply shifts the money supply curve to the _________ and increases the equilibrium interest rate. a) increase; left b) increase; right c) decrease; right d) decrease; left

D

Contractionary fiscal policy includes: a) increasing government purchases. b) increasing government transfers. c) decreasing money growth. d) raising tax rates.

D

If workers expect a lower rate of inflation, the short-run Phillips curve will: a) be unaffected. b) remain constant, but there will be a movement down the curve. c) shift up. d) shift down.

D

The Phillips curve shows: a) the optimal level of employment. b) consequences of the misperceptions theory. c) a direct relationship between unemployment and inflation. d) an inverse relationship between unemployment and inflation.

D

A major problem with bank runs is that they: a) cause both inflation and interest rates to fall. b) cause inflation, because the money moves so fast in the economy. c) spread to other banks. d) cause interest rates to fall.

c

Buying a ticket to a football game with a $20 bill means money is functioning as a: a) unit of account. b) store of value. c) medium of exchange. d) standard of deferred payment.

c

If government decides to print money to finance a deficit: a) the Fed must sell bonds in the open market. b) borrowers will be penalized because they will owe more as inflation increases. c) people who hold money will be penalized as inflation increases. d) real GDP will decrease in the long run.

c

If the currency in circulation is $100 million, checkable bank deposits are $500, savings deposits are $300 million, and travelers' checks are $10 million, then the M1 money supply is: a) $900 million. b) $100 million. c) $610 million. d) $410 million.

c

Suppose the Federal Reserve sells bonds. We can expect this transaction to: a) increase the money supply, lower bond prices, and lower interest rates. b) increase the money supply, raise bond prices, and lower interest rates. c) reduce the money supply, reduce bond prices, and raise interest rates. d) reduce the money supply, increase bond prices, and lower interest rates.

c

The government has a budget surplus if: a) its total revenues are equal to its total expenditures. b) the money supply is less than total expenditures. c) its total revenues are greater than its total expenditures. d) its total revenues are less than its total expenditures.

c

A rise in interest rates due to a decrease in the money supply will _______ aggregate demand. a) not change b) increase c) decrease aggregate supply in the short run but increase immediately the level of d) reduce

d

If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and $15,000 on deposit at the Federal Reserve, then its reserve ratio is: a) 5%. b) 12.5%. c) 10%. d) 25%.

d

Which of the following actions would allow banks to lend out more money? a) an increase in the required reserve ratio coupled with an increase in the federal funds rate b) an increase in the federal funds rate c) an increase in the required reserve ratio d) a decrease in the discount rate

d