MACRO EXAM 3

When investors wish to increase their investment activities by using the market for loanable funds demand shifts left. demand shifts right. supply shifts right. supply shifts left.

demand shifts right.

Other things equal, when the U.S. aggregate price level falls, U.S. exports _____ and U.S. imports _____. er things equal, when the U.S. aggregate price level falls, U.S. exports _____ and U.S. imports _____. fall; fall rise; rise fall; rise rise; fall

rise; fall

If the U.S. aggregate price level rises interest rates will decline. the aggregate demand curve will shift to the left. the purchasing power of wealth will decrease. net exports will also rise.

the purchasing power of wealth will decrease.

The _____ lag is the time required to turn fiscal policy into law to have an impact on the economy. information decision implementation recognition

implementation

As GDP increases, tax revenues _____ and transfer payments _____. increase; increase decline; decline increase; decline decline; increase

increase; decline

As a result of the crowding-out effect, interest rates _____ and private sector borrowing _____. decrease; increases increase; increases decrease; decreases increase; decreases

increase; decreases

Because of the wealth effect, a rising aggregate price level _____ the purchasing power of wealth and therefore _____ output demanded. increases; increases reduces; reduces reduces; increases increases; reduces

reduces; reduces

Automatic stabilizers have _____ effects during times of economic prosperity and _____ effects during times of economic downturn. contractionary; contractionary expansionary; contractionary expansionary; expansionary contractionary; expansionary

contractionary; expansionary

Automatic stabilizers, such as tax revenues and transfer payments, eliminate fluctuations in the business cycle. T/F

F

If a $1,000 bond is issued with a coupon rate of 12%, the bondholder will receive $12 per year for the life of the bond. T/F

F

In an AD/AS model, if the economy is below its long-run output, what will happen in the long run if the markets are left alone? SRAS will shift left. AD will shift right. AD will shift left. SRAS will shift right.

SRAS will shift right.

Short-run macroeconomic equilibrium occurs at the intersection of aggregate demand, short-run aggregate supply, and long-run aggregate supply. aggregate demand and long-run aggregate supply. aggregate demand and short-run aggregate supply. short-run aggregate supply and long-run aggregate supply.

aggregate demand and short-run aggregate supply.

If the real interest rate were below the equilibrium real interest rate in the loanable funds market, an excess _____ for loanable funds would occur and the real interest rate would _____. supply; fall demand; fall demand; rise supply; rise

demand; rise

Suppose the economy is at full employment, and consumers spend more than usual. In the short run, output will _____; in the long run, output will _____. increase; remain unchanged increase; increase remain unchanged; increase remain unchanged; decrease

increase; remain unchanged

An expansionary fiscal policy can result in inflation and higher GDP. lower prices. higher unemployment rates. a recession.

inflation and higher GDP.

Price stickiness refers to when prices are controlled by government regulations. prices are slow to adjust to economic shocks. firms raise their prices as soon as they hear bad news. prices of goods and services respond to the stock market.

prices are slow to adjust to economic shocks.

After the government collects the necessary macroeconomic data, it takes time for policymakers to confirm whether a recession or a recovery has started. This situation is called the _____ lag. decision recognition implementation information

recognition

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. left; increase right; decrease left; decrease right; increase

right; increase

Suppose the government implements a policy reducing the rewards earned by savers. In this case, the _____ loanable funds shifts _____. supply of; left supply of; right demand for; left demand for; right

supply of; left

Automatic stabilizers are initiated by acts of Congress. T/F

F

How do changes in inflation expectations impact the short-run aggregate supply curve and the long-run aggregate supply curve? Expectations that inflation will rise will cause movements along both curves but would cause neither curve to shift. Expectations that inflation will rise will cause short-run and long-run aggregate supply to decrease. Expectations that inflation will rise will cause short-run aggregate supply to decrease and long-run aggregate supply to remain constant. Expectations that inflation will rise will cause short-run and long-run aggregate supply to increase.

Expectations that inflation will rise will cause short-run aggregate supply to decrease and long-run aggregate supply to remain constant.

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. Increasing; reducing; raising Reducing; increasing; raising Reducing; increasing; lowering Increasing; increasing; lowering

Increasing; increasing; lowering

If improved consumer confidence leads to households saving a smaller portion of their income, what will happen in the market for loanable funds? Demand for loanable funds would shift to the left. Supply of loanable funds would shift to the left. Demand for loanable funds would shift to the right. Supply of loanable funds would shift to the right.

Supply of loanable funds would shift to the left.

A rise in real GDP is associated with increased employment. T/F

T

Discretionary spending by the federal government must work its way through the appropriations process of Congress each year. T/F

T

Examples of discretionary government spending include national defense, transportation, and education. T/F

T

Insurance companies are examples of financial intermediaries that are the bridge between savers and borrowers. T/F

T

What would cause the price level to rise and employment to increase? a shift to the left of the short-run aggregate supply curve a shift to the right of the aggregate demand curve a shift to the right of the short-run aggregate supply curve a shift to the left of the aggregate demand curve

a shift to the right of the aggregate demand curve

Which event would MOST likely lead to a decrease in interest rates and an increase in loanable funds? an increase in major purchases by individuals as consumer confidence increases a doubling of government deficits requiring the issuance of more bonds an increase in the amount of pretax dollars individuals can contribute into savings plans a sharp increase in borrowing by businesses due to an expanding economy

an increase in the amount of pretax dollars individuals can contribute into savings plans

The _____ is the amount by which annual government spending exceeds tax revenues. national debt public debt budget deficit budget surplus

budget deficit

Simultaneous recession and deflation can be explained by a(n) decrease in aggregate supply. increase in aggregate supply. decrease in aggregate demand. increase in aggregate demand.

decrease in aggregate demand.

Suppose the economy is at full employment, and energy prices spike. In the short run, output will _____; in the long run, output will _____. remain unchanged; increase remain unchanged; decrease decrease; remain unchanged decrease; increase

decrease; remain unchanged

A solution to the simultaneous emergence of deflation and unemployment is to use policies that shift the aggregate demand curve to the right. demand curve to the left. supply curve to the right. supply curve to the left.

demand curve to the right.

During cost-push inflation, aggregate output _____ and the aggregate price level _____. rises; rises falls; falls falls; rises rises; falls

falls; rises

In November 2016, Australia experienced a decrease in business spending on new plant, buildings, equipment, and machinery. What effect would this have had on Australian aggregate demand, all else equal? Australian consumption would decrease, and Australian aggregate demand would decrease. Australian net exports would increase, and Australian aggregate demand would increase. Australian net exports would decrease, and Australian aggregate demand would decrease. Australian investment would decrease, and Australian aggregate demand would decrease.

Australian investment would decrease, and Australian aggregate demand would decrease.

The demand for loanable funds is downward sloping because higher interest rates encourage firms to borrow more. as interest rates fall, businesses find more projects to be profitable and thus want to borrow more. as interest rates fall, the value of the money supply drops. higher interest rates are equivalent to higher returns on business projects.

as interest rates fall, businesses find more projects to be profitable and thus want to borrow more.

What is the one major category that separates national debt from public debt? debt held by U.S. banks debt held by other government agencies debt held by U.S. citizens debt held by foreigners

debt held by other government agencies

Which asset represents ownership in a company? stocks and bonds neither stocks nor bonds bonds stocks

stocks

If the economy shown in the figure begins at point C, an increase in consumer confidence leads to what changes in the short run? demand-pull inflation a decline in tax revenue cost-push inflation an increase in unemployment

demand-pull inflation

If the economy is above long-run equilibrium output, what will happen in the long run if SRAS adjusts? Prices fall and output decreases. Prices rise and output decreases. Prices rise and output increases. Prices fall and output increases.

Prices rise and output decreases.

In the following figure, an economy is currently in short-run equilibrium at point a. What is likely to happen in the long run? SRAS will shift to the left and the aggregate price level will decrease. SRAS will shift to the left and the aggregate price level will increase. SRAS will shift to the right and the aggregate price level will decrease. SRAS will shift to the right and the aggregate price level will increase.

SRAS will shift to the left and the aggregate price level will increase.

If income increases across Europe, what will happen to the aggregate demand curve for the United States? The aggregate demand curve will shift to the left in the short run and then to the right in the long run. The aggregate demand curve will shift to the right. The aggregate demand curve will not change. The aggregate demand curve will shift to the left.

The aggregate demand curve will shift to the right.

The solution to simultaneous deflation and unemployment is to shift the aggregate demand curve to the left. short-run aggregate supply curve to the left. aggregate demand curve to the right. short-run aggregate supply curve to the right.

aggregate demand curve to the right.

During an economic expansion, automatic stabilizers help to keep the economy from generating inflationary pressures. add to inflationary pressures. prevent the economy from growing. add to the growth of GDP.

help to keep the economy from generating inflationary pressures.

Suppose the economy is at full employment, and consumers spend more than usual. In the short run, prices will _____; in the long run, prices will _____. increase; remain unchanged increase; increase remain unchanged; decrease remain unchanged; increase

increase; increase

When the economy is in a recession, welfare and unemployment compensation payments _____ and tax revenues _____. rise; decline rise; rise decline; decline decline; rise

rise; decline

If saving falls during booming times in the economy, then the equilibrium real interest rate _____ and the quantity of loanable funds _____. rises; falls falls; falls rises; rises falls; rises

rises; falls

The quantity of loanable funds supplied by _____ is _____ related to the real interest rate. borrowers; positively borrowers; negatively savers; negatively savers; positively

savers; positively

In the market for loanable funds, what can cause a rise in interest rates? supply shifting left and demand shifting right demand shifting right only supply shifting right and demand shifting right supply shifting right only

supply shifting left and demand shifting right

The reason bond prices and interest rates are inversely related is because bond prices are fixed for the term of a bond. market interest rates stay the same for the term of a bond. the coupon payment is fixed for the term of a bond. the face value of a bond varies over the term of a bond.

the coupon payment is fixed for the term of a bond.

Which event will NOT cause the aggregate demand curve to shift? Consumers' wealth declines because of a drop in the stock market. A rise in the aggregate price level causes a decline in exports. The government increases spending on national security in the wake of terrorist attacks. Businesses are optimistic about the economy, investing heavily in new equipment.

A rise in the aggregate price level causes a decline in exports.

What is likely to happen if the government runs a budget surplus? Additional loanable funds are provided to the market, leading to higher interest rates. Loanable funds are removed from the market, leading to lower interest rates. Loanable funds are removed from the market, leading to higher interest rates. Additional loanable funds are provided to the market, leading to lower interest rates.

Additional loanable funds are provided to the market, leading to lower interest rates.

_____ will MOST likely increase the economy's long-run aggregate supply. Advancements in technology An increase in the expected inflation rate Unfavorable weather in the Corn Belt A low rate of investment

Advancements in technology

To change the mandatory spending portion of the federal budget, Congress must change any relevant laws. T/F

T

When market interest rates fall, the price of an existing bond will rise. T/F

T

If an economy's current output is greater than its long-run output with full employment, what is likely to happen to the aggregate price level and SRAS curve? The aggregate price level will fall and SRAS will shift to the left. The aggregate price level will rise and SRAS will shift to the left. The aggregate price level will fall and SRAS will shift to the right. The aggregate price level will rise and SRAS will shift to the right.

The aggregate price level will rise and SRAS will shift to the left.

If the U.S. dollar appreciates against the Canadian dollar, what is expected to happen to U.S. exports to Canada and to U.S. aggregate demand, all else equal? U.S. exports to Canada would increase and U.S. aggregate demand would increase. U.S. exports to Canada would decrease and U.S. aggregate demand would increase. U.S. exports to Canada would increase and U.S. aggregate demand would decrease. U.S. exports to Canada would decrease and U.S. aggregate demand would decrease.

U.S. exports to Canada would decrease and U.S. aggregate demand would decrease.

Which of these will cause the demand for loanable funds curve to shift leftward? an end to a program that provides investment tax credits an improvement in firms' expectations about the economy an increase in the government deficit an increase in demand for new homes

an end to a program that provides investment tax credits

Legislators debate for six months on which spending programs to utilize to manipulate the business cycle. This is an example of the _____ lag. recognition implementation information decision

decision

As GDP decreases, tax revenues _____, which tend to partially _____ the initial decline in GDP. decline; offset increase; reinforce decline; reinforce increase; offset

decline; offset

If a government collects $550 billion in taxes and spends $700 billion, it would have a deficit of $1,250 billion. surplus of $150 billion. surplus of $1,250 billion. deficit of $150 billion.

deficit of $150 billion.

When fiscal policy is used to correct short-run fluctuations in the business cycle, which type of spending is able to be changed more readily? Both discretionary and mandatory spending can be readily changed. mandatory spending discretionary spending Neither discretionary nor mandatory spending can be changed.

discretionary spending

If the economy is producing at an output level below full employment, the government should _____ spending and _____ taxes. decrease; decrease decrease; increase increase; increase increase; decrease

increase; decrease

A rising aggregate price level _____ interest rates and therefore _____ output demanded. increases; increases reduces; reduces reduces; increases increases; reduces

increases; reduces

How would an increase in the consumer price index be represented in the following figure? shift of AD0 to AD1 movement from point a to point b shift of AD1 to AD0 movement from point b to point a

movement from point a to point b

The _____ lag is the time policymakers must wait for economic data to be collected, processed, and reported. implementation information recognition decision

information

When the economy is overheating and policymakers pursue contractionary fiscal policy, they express a willingness to trade off _____ output for a _____ price level. lower; lower higher; lower higher; higher lower; higher

lower; lower

(Figure: Effects of Contractionary Fiscal Policies) The graph below depicts an economy in short-run equilibrium at point a. For an economy in this situation, contractionary fiscal policies could lead to a higher price level. move the economy to full employment. move the economy away from full employment. lead to a higher price level and lower employment.

move the economy to full employment.

All of these are considered expansionary fiscal policies EXCEPT a(n) increase in transfer payments. increase in government spending. reduction in unemployment compensation. decrease in personal taxes.

reduction in unemployment compensation.

If the government offers an incentive for individuals to save, the supply for loanable funds will shift to the _____ and the real interest rate will _____. left; increase right; decrease right; increase left; decrease

right; decrease

If the government offers firms investment tax credits for building new factories, the after-tax rate of return _____, causing the loanable funds _____ curve to shift _____, leading to _____ interest rates. falls; demand; leftward; lower rises; demand; leftward; higher rises; demand; rightward; higher rises; supply; rightward; lower

rises; demand; rightward; higher

If an economy is in a recession, what would expansionary fiscal policy do? shift SRAS to the left shift AD to the right shift AD to the left shift SRAS to the right

shift AD to the right

Suppose a severe drought results in a poor harvest and leads to higher overall food prices. This situation is a _____ shock and is likely to lead to _____ inflation. demand; demand-pull demand; cost-push supply; cost-push supply; demand-pull

supply; cost-push

As interest rates fall the supply curve for loanable funds shifts to the right. the supply curve for loanable funds shifts to the left. there is a movement upward along the supply curve for loanable funds. there is a movement downward along the supply curve for loanable funds.

there is a movement downward along the supply curve for loanable funds.