MACRO IS FINAL

A reduction in personal income taxes increases Aggregate Demand through

an increase in personal consumption

If Congress increased the tax rate on interest income, investment

and saving would decrease

Credit cards

are not considered money

A decrease in the money supply creates an excess

demand for money that is eliminated by falling prices.

If a firm sells a total of 100 shares of stock, then

each share represents ownership of 1 percent of the firm

As recessions begin, income

falls and unemployment rises

As the Consumer Price Index increases, the value of money

falls, so people hold more money to buy the goods and services they want.

Aggregate demand shifts left if

government purchases decrease and shifts left is stock prices fall

Fiscal policy refers to the idea that aggregate demand is affected by changes in

government spending and taxes

Fiscal policy is determined by

he president and Congress and involves changing government spending and taxation

Wealth is redistributed from debtors to creditors when inflation was expected to be

high and it turns out to be low

If the Fed conducts open-market purchases, the money supply

increases and aggregate demand shifts right.

A decrease in the price level

increases the quantity of goods and services demanded

Currency includes

paper bills and coins

As the price level decreases, the value of money

increases, so people must hold less money to purchase goods and services.

A mutual fund

is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds

The risk of a portfolio

is positively related to the average return of the portfolio.

A reduction in the inflation rate would make relative prices

less variable, making it more likely that resources will be allocated to their best use.

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

likely smaller than if the cut had been permanent.

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

liquidity trap

Economic variables whose values are measured in monetary units are called

nominal variables

A bond that never matures is known as a

perpetuity

The Wagner Act of 1935

prevents employers from interfering when workers try to organize a union.

A relatively mild period of falling incomes and rising unemployment is called a(n)

recession.

About what percentage of jobs are destroyed every year, and about what percentage of workers leave their jobs in a typical month?

10% and 3%

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

2.0 percent.

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

aggregate demand right

A decrease in government spending initially and primarily shifts

aggregate demand to the left.

A decrease in the availability of an important major resource such as oil shifts

aggregate supply left

A person who is counted as "unemployed" by the Bureau of Labor Statistics

all of the above

An economy's natural rate of unemployment is the

amount of unemployment that the economy normally experiences.

Which of the following is correct concerning stock market irrationality?

Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future

Which of the following might explain why the United States has so much currency per person?

Currency may be a preferable store of wealth for criminals.

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement

It has $40,000 in deposits.

Which of the following is correct concerning diversification?

It only reduces firm-specific risk; much of the reduction comes from increasing the number of stocks in a portfolio from 1 to 30.

Discouraged workers are included in

None of the above is correct

Which of the following is a source of market risk?

Real GDP varies over time and sales and profits move with real GDP

Government-run employment agencies and public training programs are operated by the government to try to facilitate job search and reduce unemployment

Some economists claim that the government can do these things no better than firms and individuals could do them for themselves

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in assets. Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years. Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he retires?

Stan

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.

According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to

a decrease in the price level but does not change real GDP

Which of the following games might a risk-averse person play?

a game where she has a 60 percent chance of winning $1 and a 40 percent chance of losing $1

Which of the following is adverse selection?

a high-risk person being more likely to apply for insurance

Other things the same, as the maturity of a bond becomes longer, the bond will pay

a higher interest rate because it has more risk

Any item that people can use to transfer purchasing power from the present to the future is called

a store of value.

According to the rule of 70, if the interest rate is 10 percent, about how long will it take for the value of a savings account to double?

about 7 years

Efficiency wages, minimum-wage laws, and unions all keep wages

above the equilibrium level, causing a surplus of labor.

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a

bond

A closed economy

both a and b (does not engage in international trade of goods and services, and does not engage in international borrowing or lending)

In general, as a person includes fewer stocks and more bonds in his portfolio,

both risk and expected return fall.

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

classical theory, but not liquidity preference theory

Shoeleather cost refers to

resources used to maintain lower money holdings when inflation is high

A decrease in the expected price level shifts short-run aggregate supply to the

right, and an increase in the actual price level does not shift short-run aggregate supply.

Which of the following is included in M2 but not in M1?

savings deposits

Most economists use the aggregate demand and aggregate supply model primarily to analyze

short-run fluctuations in the economy.

A decrease in the money supply might indicate that the Fed had

sold bonds in an attempt to increase the federal funds rate

A U.S. Treasury bond is a

store of value, but not a common medium of exchange

Sam has no job but keeps applying to get a job with a business that is unionized. He is qualified and he finds the pay attractive, but the firm is not hiring. Sam is

structurally unemployed. Structural unemployment exists even in the long run

Other things being constant, when a firm sells new shares of stock, the

supply of the stock increases and the price decreases

A problem that the Fed faces when it attempts to control the money supply is that

the Fed does not control the amount of money that households choose to hold as deposits in banks

A tax cut shifts the aggregate demand curve the farthest if

the MPC is large and if the tax cut is permanent.

You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon. You may treat a car you rented with a little less care than you would use on your own car.

the first example primarily illustrates adverse selection; the second primarily illustrates moral hazard

According to the classical dichotomy, when the money supply doubles, which of the following also doubles?

the price level and nominal wages

Aggregate demand includes

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

A decrease in government spending and the enactment of an investment tax credit would definitely cause

the quantity of loanable funds traded to increase

Economists use the term "money" to refer to

those types of wealth that are regularly accepted by sellers in exchange for goods and services.