Macro Final

11. Edgar is working part-time. Diane is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category? a. only Edgar b. only Diane c. both Edgar and Diane d. neither Edgar nor Diane

A

17. Which of the following is not included in M1? a. savings deposits b. traveler's checks c. currency d. demand deposits

A

24. If the central bank in some country lowered the reserve requirement, then the money multiplier for that country a. would increase. b. would not change. c. would decrease. d. could do any of the above.

A

33. Which of the following is correct? Inflation a. impedes financial markets in their role of allocating resources. b. reduces the purchasing power of the average consumer. c. generally increases after-tax real interest rates. d. is most costly when anticipated.

A

38. If the dollar appreciates because of speculation or government policy U.S. a. aggregate demand shifts left. U.S. aggregate demand also shifts left if other countries experience recessions. b. aggregate demand shifts left. U.S. aggregate demand shifts right if other countries experience recessions. c. aggregate demand shifts right. U.S. aggregate demand also shifts right if other countries experience recessions. d. aggregate demand shifts rig

A

65. Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be a. an increase in government purchases. b. a decrease in the money supply. c. an increase in taxes. d. All of the above are correct.

A

66. Starting from the natural rate of output, suppose the price of imported oil rises. If the government wanted to stabilize output, which of the following could it do? a. increase government expenditures or increase the money supply b. increase government expenditures or decrease the money supply c. decrease government expenditures or increase the money supply d. decrease government expenditures or decrease the money supply

A

1. Institutions that help to match one person's saving with another person's investment are collectively called the a. Federal Reserve system. b. financial system. c. monetary system. d. banking system.

B

10. Unemployment data are collected a. from unemployment insurance claims. b. through a regular survey of about 60,000 households. c. through a regular survey of about 200,000 firms. d. using all of the above.

B

15. Efficiency wages a. increase productivity and reduce unemployment. b. increase productivity but increase unemployment. c. decrease productivity but reduce unemployment. d. decrease productivity and increase unemployment.

B

18. An open-market purchase a. increases the number of dollars and the number of bonds in the hands of the public. b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c. decreases the number of dollars and the number of bonds in the hands of the public. d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

B

20. Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy? a. the Board of Governors b. the FOMC c. the regional Federal Reserve Bank presidents d. the Central Bank Policy Commission

B

21. To increase the money supply, the Fed could a. sell government bonds. b. decrease the discount rate. c. increase the reserve requirement. d. None of the above is correct.

B

22. In a system of 100-percent-reserve banking, a. banks do not accept deposits. b. banks do not influence the supply of money. c. loans are the only asset item for banks. d. All of the above are correct.

B

29. Economic variables whose values are measured in monetary units are called a. dichotomous variables. b. nominal variables. c. classical variables. d. real variables.

B

32. Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of a. 3.5 percent and a real interest rate of 5 percent. b. 3.5 percent and a real interest rate of 2 percent. c. 5 percent and a real interest rate of 3.5 percent d. 5 percent and a real interest rate of 2 percent

B

35. When inflation rises, people tend to go to the bank a. more often, giving rise to menu costs. b. more often, giving rise to shoeleather costs. c. less often, giving rise to redistribution costs. d. less often, thereby lessening the severity of the inflation tax.

B

42. Which of the following shifts short-run, but not long-run aggregate supply right? a. a increase in the nominal wage b. a decrease in the nominal wage c. a decrease in the capital stock d. an increase in the money supply

B

43. Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting a. aggregate supply right. b. aggregate demand right. c. aggregate demand left. d. aggregate supply left.

B

46. Which of the following by itself is consistent with the directions that the price level and real GDP changed at the onset of the Great Depression? a. aggregate demand shifted right b. aggregate demand shifted left c. aggregate supply shifted right d. aggregate supply shifted left

B

47. Which of the following would raise the price level in both the short and long run? a. an increase in taxes b. an increase in government expenditures c. a decrease in the minimum wage d. an increase in the capital stock

B

48. In the mid-1970s the price of oil rose dramatically. This a. caused U.S. prices to fall. b. shifted aggregate supply left. c. was the consequence of OPEC increasing oil production. d. All of the above are correct.

B

49. Changes in the interest rate a. shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy. b. shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level. c. shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy. d. do not shift aggregate demand.

B

51. The wealth effect stems from the idea that a higher price level a. increases the real value of households' money holdings. b. decreases the real value of households' money holdings. c. increases the real value of the domestic currency in foreign-exchange markets. d. decreases the real value of the domestic currency in foreign-exchange markets.

B

53. Liquidity preference theory is most relevant to the a. short run and supposes that the price level adjusts to bring money supply and money demand into balance. b. short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c. long run and supposes that the price level adjusts to bring money supply and money demand into balance. d. long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

B

54. In which of the following cases would the quantity of money demanded be largest? a. r = 0.03, P = 1.2 b. r = 0.03, P = 1.3 c. r = 0.04, P = 1.2 d. r = 0.05, P = 0.9

B

55. Refer to Figure 34-1. If the current interest rate is 2 percent, a. there is an excess supply of money. b. people will sell more bonds, which drives interest rates up. c. as the money market moves to equilibrium, people will buy more goods. d. All of the above are correct.

B

60. Supply-side economists believe that a reduction in the tax rate a. always decrease government tax revenue. b. shifts the aggregate supply curve to the right. c. provides no incentive for people to work more. d. would decrease consumption.

B

63. The primary argument against active monetary and fiscal policy is that a. attempts to stabilize the economy do not constitute a proper role for government in a democratic society. b. these policies affect the economy with a long lag. c. these policies affect the economy too quickly and with too much impact. d. history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income.

B

Labor Data for Wrexington Year 2004 2005 2006 Adult population 2000 3000 3200 Number of employed 1400 1300 1600 Number of unemployed 200 600 200 7. Refer to Table 28-1. The unemployment rate of Aridia in 2005 was a. 20%. b. 31.6%. c. 46.2%. d. 63.3%.

B

13. Minimum wages create unemployment in markets where they create a a. shortage of labor. Minimum wage laws are not the predominant reason for unemployment in the U.S. b. shortage of labor. Minimum wage laws are the predominant reason for unemployment in the U.S. c. surplus of labor. Minimum wage laws are not the predominant reason for unemployment in the U.S. d. surplus of labor. Minimum wage laws are the predominant reason for unemployment in the U.S.

C

16. Economists use the word "money" to refer to a. financial assets such as stocks and bonds. b. any type of wealth. c. those assets regularly used to buy goods and services. d. income generated by the production of goods and services.

C

19. Which of the following does the Federal Reserve not do? a. conduct monetary policy b. act as a lender of last resort c. convert Federal Reserve Notes into gold d. serve as a bank regulator

C

23. Which of the following is an asset of a bank and a liability for its customers? a. deposits of its customers and loans to it customers b. deposits of its customers but not loans to its customers c. loans of its customers but not the deposits of its customers d. neither the deposits of its customers nor the loans to its customers

C

26. The interest rate the Fed charges on loans it makes to banks is called a. the prime rate. b. the federal funds rate. c. the discount rate. d. the LIBOR.

C

27. Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then a. both the nominal and the real interest rate rise. b. neither the nominal nor the real interest rate rise. c. the nominal interest rate rises, but the real interest rate does not. d. the real interest rate rises, but the nominal interest rate does not

C

28. Money demand refers to a. the total quantity of financial assets that people want to hold. b. how much income people want to earn per year. c. how much wealth people want to hold in liquid form. d. how much currency the Federal Reserve decides to print.

C

3. If the supply for loanable funds shifts to the left, then the equilibrium interest rate a. and quantity of loanable funds rise. b. falls and the quantity of loanable funds rises. c. rises and the quantity of loanable funds falls. d. and quantity of loanable funds fall.

C

30. Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P? a. Y rose, V rose b. Y fell, V fell c. Y rose, V fell d. Y fell, V rose

C

31. The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the a. Friedman Effect. b. Hume Effect. c. Fisher Effect. d. None of the above is correct.

C

37. Which of the following decreases in response to the interest-rate effect from an increase in the price level? a. investment but not consumption b. consumption but not investment c. both investment and consumption d. neither investment nor consumption

C

39. Other things the same, a decrease in the price level motivates people to hold a. less money, so they lend less, and the interest rate rises. b. more money, so they lend more, and the interest rate rises. c. less money, so they lend more, and the interest rate falls. d. more money, so they lend less, and the interest rate falls.

C

40. From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted a. aggregate demand left. b. aggregate supply left. c. aggregate demand right. d. aggregate supply right.

C

41. According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to a. increases in both the price level and real GDP. b. an increase in real GDP but does not change the price level. c. an increase in the price level but does not change real GDP. d. no change in either the price level or real GDP.

C

5. Which of the following events could explain a decrease in interest rates together with an increase in investment? a. The government instituted an investment tax credit. b. The government went from surplus to deficit. c. The government reduced the tax rate on savings. d. None of the above is correct.

C

50. Fed's open-market purchase implies? a. an increase in money supply and rise of interest rates b. an decrease in money supply and rise of interest rates c. an increase in money supply and fall of interest rates d. a decrease in money supply and fall of interest rates

C

52. In recent years, the Federal Reserve has conducted policy by setting a target for the a. size of the money supply. b. growth rate of the money supply. c. federal funds rate. d. discount rate.

C

57. In which of the following cases does the aggregate-demand curve shift to the right? a. The price level rises, causing the interest rate to fall. b. The price level falls, causing the interest rate to fall. c. The money supply increases, causing the interest rate to fall. d. The money supply decreases, causing the interest rate to fall.

C

58. Which of the following sequences best explains the negative slope of the aggregate-demand curve? a. price level demand for money equilibrium interest rate quantity of goods and services demanded b. price level demand for money equilibrium interest rate quantity of goods and services demanded c. price level demand for money equilibrium interest rate quantity of goods and services demanded d. price level equilibrium interest rate demand for money quantity of goods and services demanded

C

6. The labor-force participation rate tells us the fraction of the population that a. is able to participate in the labor market. b. has ever been employed. c. has chosen to participate in the labor market. d. has chosen not to participate in the labor market.

C

64. Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could a. increase the money supply. This increase would also move the price level closer to its value before the rise in stock prices. b. increase the money supply. However, this increase would move the price level farther from its value before the rise in stock prices. c. decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices. d. decrease the money supply. However, this de

C

8. The BLS counts discouraged workers as a. employed. Including them as employed makes the unemployment rate lower than otherwise. b. unemployed. Including them as unemployed makes the unemployment rate higher than otherwise. c. out of the labor force. If the were counted as unemployed the unemployment rate would be higher. d. None of the above is correct.

C

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. A B C F S S D D 1 2 1 2 i 4. Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called a. a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. b. a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments. c. an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. d. an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend.

C

12. For the Bureau of Labor Statistics to place someone in the "unemployed" category, that person must a. have worked no more than 10 hours during the past week.. b. have tried to find employment during the previous year. c. not have been laid off. d. None of the above is correct.

D

14. Unions contribute to a. cyclical unemployment. b. frictional unemployment. c. seasonal unemployment. d. structural unemployment.

D

2. In a closed economy, national saving equals a. income minus the sum of consumption and government purchases. b. private saving plus public saving. c. investment. d. All of the above are correct.

D

25. If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to a. $5,500 of new money. b. $5,000 of new money. c. $4,000 of new money. d. None of the above is correct.

D

34. In 1898 (when gold served as money), prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level to a. decrease that benefited creditors at the expense of debtors. b. decrease that benefited debtors at the expense of creditors. c. increase that benefited creditors at the expense of debtors. d. increase that benefited debtors at the expense of creditors.

D

36. In 2001, the United States was in recession. Which of the following things would you not expect to have happened? a. increased layoffs and firings b. a higher rate of bankruptcy c. increased claims for unemployment insurance d. increased investment spending

D

44. An increase in the price level and a reduction in output would result from a. declining government expenditures. b. a fall in stock prices. c. tax rebates. d. natural disasters such as hurricanes, floods, and droughts.

D

45. Refer to Optimism. How is the new long-run equilibrium different from the original one? a. both price and real GDP are higher b. both price and real GDP are lower. c. the price level is the same and GDP is higher. d. the price level is higher and real GDP is the same

D

56. The (equilibrium) interest rate falls if a. either money demand or money supply shifts right. b. money demand shifts right, or money supply shifts left. c. either money demand or money supply shifts left. d. money demand shifts left or money supply shifts right.

D

59. The multiplier effect a. and the crowding-out effect both amplify the effects of an increase in government expenditures. b. and the crowding-out effect both diminish the effects of an increase in government expenditures. c. diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects. d. amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.

D

61. Tax cuts a. shift aggregate demand right while increases in government expenditures shift aggregate demand left. b. shift aggregate demand left while increases in government expenditures shift aggregate demand right. c. and increases in government expenditures shift aggregate demand left. d. and increases in government expenditures shift aggregate demand right.

D

9. Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called a. the natural rate of unemployment. b. cyclical unemployment. c. structural unemployment. d. frictional unemployment.

D

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,300. 62. Refer to Scenario 34-1. The marginal propensity to consume for this economy is a. 0.650. b. 0.664. c. 0.650 or 0.664, depending on whether income is $10,000 or $11,000. d. 0.800.

D