MACRO FINAL - ALL PREVIOUS TEST QUESTIONS]
If the reserve requirement is 25% and a new deposit leads to a potential increase in the money supply of $4,000, the amount of the new deposit must equal
$1,000
if you spend $100 and the MPC is 0.9, how much spending will this $100 generate in the economy
$1,000
when jay wins a contest, he is able to choose one prize from 4 options. he chooses a 4-year certificate of deposit that will accumulate interest and cannot be cashed until maturity in 4 years. given the options below, which prize would provide jay with the largest value 4 years from now
$1,100 with an interest rate of 3%
when using the expenditure approach, the GDP is
$1770 billion
the slope of the saving schedule is
1 - MPC
if the government raises taxes, what will this do to the AD curve
AD shifts left
the real GDP that firms will produce at varying price levels is
aggregate supply
what does the 45 degree line in the aggregate expenditures model represent
all consumption and no saving
assume the reserve requirement is 25% and the federal open market committee buys $4 million of US government bonds from the public. as a result of this transaction, the supply of money is
directly increased by $4 million and has the potential to be increased by another $12 million
the GDP deflator shows that since the mid 1980's, the US economy has had
disinflation
the functions of money include
medium of exchange, store of value, unit of account
what is the likely chain of events if asset prices rise
people feel wealthier so their spending rises and their saving falls, causing interest rates to rise
if the federal reserve decides to increase the money supply
the federal funds rate will fall
which organization determines the beginning and end dates of a recession
the national bureau of economic research
a decrease in foreign income will cause the aggregate demand to shift to the left
true
a decrease in the reserve ratio will increase excess reserves
true
a monetary rule would make it difficult to respond to unforeseen consequences
true
frictional employment refers primarily to workers between jobs
true
if a bank does not have enough funds in reserves, it can borrow through either the federal funds market or the discount window
true
when economists warn about the crowding-out effect, they are referring to
when government borrowing reduces private investment
in the following aggregate expenditures graph, to raise income from $4,400 to $4,800, government spending (G) must increase by _________; this corresponds with an MPC of
$100; 0.75
if your income is $35,000 and the average propensity to save is 0.46, what is consumption
$18,900
if the reserve requirement is 10%, and a bank initially receives $20,000 in deposits, then the maximum amount of money that the banking system can create is
$200,000
If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output.
$4,000
if the marginal propensity to save is 0.2 and income rises by $5,000, how much of the $5,000 will be consumed
$4,000
assume that the empathy state bank begins with the balance sheet below and is fully loaned up. if this bank is subject to a reserve requirement of 5%, what is the amount of its excess reserves
$5,000
if your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114
$51,818
if the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be
$60 million
last year, Megan's salary was $65,000. The CPI increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be
$68,578
assume the reserve requirement is 10% and all banks are fully loaned up. if a new deposit of $10,000 is made into bank X, that bank, with this deposit can make a new loan of
$9,000
which of the following marginal propensities to consume results in the flattest consumption line in an aggregate expenditures model
0.4
if MPC = 0.6, what is the spending multiplier
2.5
the housing bubble occured from
2004-2006
using the equation of exchange, if the money supply is $4 trillion, the price level is 2, and level of output (real GDP) is $6 trillion, then the velocity of money is
3
suppose the unemployment rate is 10% and an economist breaks the unemployment breaks into the following components: frictional (3%) and structural (3%). based on the estimates, the cyclical inflation rate is
4%
suppose the government collected $3.2 trillion in tax revenues and spent $3.8 trillion, and discretionary spending was $1.5 trillion. for the government to fully balance the budget this year, how much discretionary spending needs to be cut
40%
if technological advances increase productivity, the demand for loanable funds curve will shift from __________ to ____________ and the new equilibrium will be at point __________, holding supply constant at S0
D0; D1; c
if a country's population increases at a slower rate than the growth in its real GDP
GDP per capita has increased
the quantity theory equation of exchange states
M * V = P * Q
the federal reserve engineered a recession to reduce out-of-control inflation under
Paul Volcker
If households decide to save a larger portion of their income, because they fear job loss due to a recession, the loanable funds supply curve will shift from ___________ to ____________, and the new equilibrium will be at point ______, holding demand constant at D0
S0; S1; b
if there are advances in technology, the short run aggregate supply curve will shift from SRAS0 to ___________ and the price level will shift to ___________
SRAS1; P1
if the government raises taxes or increases regulations, the short run aggregate supply curve will shift from SRAS0 to _____________ and the price level will be at __________
SRAS2; P2
which of these items is not a function of money
a method of making change
_______________ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange
a monetary rule
according to john maynard keynes, what determines employment and income
aggregate expenditures
if the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output
aggregate price level decreases; aggregate output increases
which of the following resources is an example of infrastructure
an elementary school
which of the following fiscal policies would least likely result in an increase in aggregate supply
an increase in business regulations
how does the spending multiplier compare between a $1,000 increase in a government spending and a $1,000 decrease in taxes collected
an increase in government spending has a greater spending multiplier than an equivalent tax decrease
a shift of the long run aggregate supply curve to the right suggests which of the following
an increase in productivity
according to the taylor rule, the 2 most important factors influencing the federal reserve's changing the federal funds rate are
an inflation rate different from the fed's target and output different from potential GDP
if full employment income is $1,000 while the current equilibrium is $750 a point a, _____ gap exists, such that __________ in aggregate expenditures equal to __________ is needed to close the gap
an inflationary; a decrease; $100
retirees and creditors
are hurt by inflation because their purchasing power is reduced
which of the following statements do economists generally disagree on
at an average tax rate of 50%, tax revenues are maximized for a government
the direct exchange of goods and services is called
barter
the report that compiles economic conditions collected by the federal reserve regional banks is called the
beige book
the portion of the national debt that is not held by the federal reserve and government agencies include
both the internally and externally held debt
the great depression showed that the short run aggregate supply and the aggregate demand curves
can intersect at output levels below full employment
the multiplier effect shows that a change in aggregate spending
causes output to change even more than the change in aggregate spending
among these options, the least likely risky portfolio is 50% ____________ and 50% __________
certificates of deposit; blue-chip stocks
which action is not a tool of monetary policy
changing government spending and taxes
the idea that all income ultimately goes to households, which then use to buy goods and services from firms, is a central idea of the:
circular flow diagram
which of these was not a cause of the 2007-2009 financial crisis
congress enacted restrictive trade policies that failed to curb imports
an economist notices that M1 is rapidly rising. One conclusion she might draw is that:
consumers are preparing to make more purchases
reducing government spending , reducing transfer payments, or raising taxes describes which policy
contractionary fiscal policy
automatic stabilizers have __________ effects during times of economic prosperity and ____________ effects during times of economic downturn
contractionary; expansionary
the 1973 oil shocks created
cost pull inflation
banks
create money by making loans using the deposits of their customers
the most common type of short term debt is
credit card debt
which of the following requires the government to balance its budget over the business cycle
cyclically balanced budget
what is the one major category that separates national debt from public debt
debt held by other government agencies
which short run economic shock would be the most difficult to address through monetary policy
decrease in short run aggregate supply
what did arthur laffer suggest president reagan do in the 1980's
decrease income taxes
in February 2010, the central bank of Brazil raised reserve requirements. by raising those requirements, Brazil was attempting to
decrease its money supply
suppose energy prices spike. in the short run, output will _____________; in the long run, output will ________ from its starting point
decrease; remain unchanged
if a government collects $550 billion in taxes and spends $700 billion, it would have a
deficit of $150 billion
which one of the following is a reason the crowding-out effect could be mitigated
deficit spending used for public investment
the 3 types of consumption are
durables, nondurables and services
the use of tax receipts to modernize the air traffic control system promotes economic growth by
enhancing physical and human capital
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 short run aggregate supply to decrease and long run aggregate supply to remain constant
a consumer price index of 107 means that prices rose by 7% from the previous year
false
a country's infrastructure does not affect its economic growth
false
a product demand curve and the aggregate demand curve are negatively sloped for the same reasons
false
during demand pull inflation, the economy cannot expand beyond full employment
false
during the 2007-2009 recession, the federal reserve was not able to compensate for the change in the money supplier
false
if a bank is subject to a reserve requirement of 3% and its reserve ratio is 1%, this bank is considered highly liquid
false
in the short run, demand and supply shocks to the economy require the same monetary policy
false
monetary policy lags can last up to 3 years
false
mortgage debt is a type of short term debt
false
most economists agree that the long term goal of monetary policy is to keep interest rates as low as possible
false
new regulations on financial firms include the lower capital requirements and more restrictions on leverage
false
no federal reserve chairman has had to deal with deflation since 1978
false
some analysts blame the last economic crisis on federal reserve policy. they argue that the fed did not adequately regulate the mortgage markets credit standards for issuing loans as required by the federal reserve act
false
spending money on research and development hurts a national economy because it increases the average cost of all products
false
supply shocks that are counteracted by increasing the money supply will restore the economy to full employment and also decrease the price level
false
the 2007 housing crisis led banks to increase lending in an effort to offset foreclosures
false
the balanced budget multiplier changes according to the values of marginal propensity to consume and marginal propensity to save
false
the discount rate is the rate that banks charge their best customers
false
the intangible components of infrastructure are the easiest to measure objectively
false
the labor force consists of all adults in the US
false
the return on investment of an asset largely depends on the risk of the asset, with lower risk assets generally earning a higher return
false
when the fed buys bonds, its demand raises the price of bonds, in turn raising nominal interest rates in the market
false
which of the following would not cause a rightward shift in aggregate supply
fear of inflation
the __________ oversees the main tool of monetary policy
federal open market committee
when recession gets under way
firms start to lay off workers to reduce costs
if the reserve requirement is 25% then a $500 increase in deposits means that the money supply
has the potential to increase by $2,000
which of the following statements are true i. if cyclical unemployment is 0%, then the unemployment rate equals the natural rate of unemployment ii. the unemployment rate consists of only frictional or structural unemployment iii. an unemployment rate of 0% is generally considered the equivalent of full employment
i only
which of the following are considered withdrawals from an economy
imports; taxes; savings
increases in government spending ______________ equilibrium income, and increases in taxes ______________ equilibrium income
increase, decrease
a ______ in oil prices and a ______ in taxes will shift short run aggregate supply to the left
increase; increase
a ___________ in productivity and a _____ in taxes will shift short run aggregate supply to the right
increase; increase
according to the production function, which of the following changes will not result in economic growth
increases in consumption spending
which of the following measures would decrease the money supply
increasing reserve requirement
if 2014 is selected as the base year, the economy is experiencing ____________ in 2017
inflation
_______ occurs when a central bank sets a target inflation rate and adjusts monetary policy to keep inflation within that range
inflation targeting
if real GDP at full employment is $5 billion while current GDP is $6 billion, a ________ exists, and will require a _________ in spending to bring the economy back to full employment
inflationary gap; decrease
the GDP gap divided by the multiplier yields the
inflationary or recessionary gap
in september 2013, the FOMC said it would wait for more evidence that progress had been made on teh economic recovery before it cut back on open market purchases. the BEA did not release its advanced estimate of the 3rd quarters GDP growth until a month after the quarter ended. the 2nd estimate was released 2 months after the quarter ended and a 3rd revised estimate was released about 3 months after the quarter ended. the wait for accurate data to be collected is known as the
information lag
GDP includes output produced _________ but it does not include output produced ___________
inside the US by foreign citizens; outside the US by US citizens
the most important measure in determining whether a country's national debt is a significant problem is
interest paid on the national debt as a portion of GDP
money
is anything that is accepted in exchange for other goods and services or payment of debt
if an economy is on the vertical portion of the aggregate supply curve, then it
is at full employment
when the consumption lies below the 45 degree reference line, saving
is positive
an economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as
jobless recovery
the national economic objectives that the Fed attempts to achieve include all the following actions except
keeping tax rates low
the cost of cyclical unemployment can be minimized by
keeping the economy on a steady, low-inflationary growth path
which of these was not a factor leading to the 2007-2009 financial crisis?
lack in faith in the ability of the US treasury to pay on government bonds
lack of transparency regarding monetary policy could cause which problem
lack of understanding among the public regarding monetary policy actions
generally, which group of people has the highest marginal propensity to consume
low income people
according to the taylor rule, the more GDP falls below potential GDP, other things equal the
lower the federal funds target rate
student loans funded by the government typically offer ____________ interest rates than similar bank loans and ______________
lower; can be paid back later
which measure did the european central bank take to prevent the financial crises in individual countries from collapsing the eurozone
making loans to troubled countries
the money multiplier
measures the maximum amount the money supply can increase when new deposits enter the banking system
milton friedman and anna schwarts are most famous for
monetary theory
all of the following programs are mandatory spending except
national defense
which situation indicates that total output in a country has grown the most when the starting output is the same in all situations
output per worker grows by 4% while the labor force grows by 12%
the price of feed corn would be included in the
producer price index
which phase of the business cycle occurs immediately before a trough
recession
if the economy has high levels of unemployment, the federal reserve will
reduce interest rates
which of the following is a source of increases in productivity
research and development, improvements in labor quality, capital investment
which of the following is a form of US public debt
savings bonds
if the fed wants to raise the federal funds rate, it will ________ bonds, which __________ bond prices
sell; lower
all of these actions are performed by the federal reserve regional banks except
setting reserve requirements
if an economy is in a recession, what would expansionary fiscal policy do
shift AD to the right
the aggregate demand curve
shows the amount of real GDP that will be demanded at each possible price level
consumption spending is
spending by individuals and households on both durable and nondurable
since the invention of automatic teller machines, many bank tellers have lost their job. This is an example of ______ unemployment
structural
if both consumers and businesses are pessimistic about the future of the economy
the aggregate demand curve shifts to the left
the potbelly pothole company is undertaking some investments in its plant. suppose interest rates fall and new technologies increase the return on its investment. what is likely to happen
the companys demand for investments will rise
in the US, the census bureau computes the unemployment rate from
the current population survey
an increase in aggregate demand can be caused by
the depreciation of the dollar
which of the following is a critical dilemma when implementing fiscal policy in reference to timing lags
the economy may already be in a recovery before fiscal policy is enacted
the discount rate is the interest rate
the fed charges depository institutions to borrow reserves from a regional federal reserve bank
which statement is not a criticism of the federal reserve's handling of the 2007-2009 financial crisis
the fed should have strengthened the dollar to shore up exports
the national activity index was developed by
the federal reserve bank of chicago
in the market for loanable funds, the government reduces tax breaks for saving and increases the penalties for corruption. what changes should be expected in the market for loanable funds due to these events
the interest rates will rise, but there is uncertainty about any change in the amount of borrowed funds
which statement is not true
the supply of funds to the loanable funds market is inversely related to the interest rate
in the equation of exchange, if M=$2 trillion, P=1.5, and Q=$8 trillion
the velocity of money (V)=6
when the federal reserve sells bonds, it is implementing
tight money policy
after the banking crisis of 2008-2009, the financial services industry now has to meet
tighter regulations
certeris paribus, a decrease in imports will increase aggregate demand
true
expansionary monetary policy shifts the aggregate demand curve rightward
true
free trade refers to the ability to buy and sell products with other countries without significant barriers, such as tariffs or quotas
true
if new technologies are not developed, the catch-up effect tends to slow over time
true
if the reserve requirement is 20%, the money multiplier is 5
true
in both the simple keynesian model and the full keynesian model, the sum of injections of spending must equal the sum of withdrawals at equillibrium
true
keynes believed that more government spending was necessary to solve the unemployment problem created by the great depression, since it was unlikely that investment or exports would increase
true
monetarists believe that any change in the money supply will change prices, output, or both in the short run
true
monetarists believe that the economy will return to full employment in the long run on its own
true
shortcomings of the national income and product accounts include ignoring nonmarket transactions, such as the value of your labor within your own home (value of cooking your own dinner)
true
stocks tend to be more volatile than bonds
true
tax changes generally have less of an impact on equilibrium than do changes in gov. spending
true
the 45 degree line represents the set of points where aggregate expenditures is equal to disposable income
true
the compounding effect makes debt repayment significantly higher over time
true
the consumer price index measures the average change in prices paid by urban consumers and urban wage earners for a market basket of goods and services, covering 87% of the population
true
the federal reserve is responsible for, among other things, promoting economic growth with low inflation
true
the great depression was characterized by a lack of aggregate demand
true
the legal enforcement of contract rights is an important component of intangible infrastructure that promotes economic growth
true
the long run aggregate supply curve represents the full employment capacity of the economy
true
there is an inverse relationship between bond prices and interest rates
true
when the open market committee buys $1 million worth of bonds, $1 million of reserves is instantly put into the banking system
true
when you deposit $100 in your bank, your bank can lend part of that $100 to others
true
which of the following is an example of an automatic stablizer
unemployed workers claiming unemployment benefits during a recession
social security and medicare are considered ____________ liabilities and expected to ____________ over the next generation
unfunded; rise