Macro

Which of the following correctly explains the crowding-out effect?

An increase in government expenditures increases the interest rate and so reduces investment spending.

Figure 33-10. Refer to Figure 33-10. If the economy starts at point A, a short-run fall in output would be consistent with a movement to point

D.

Figure 33-10. Refer to Figure 33-10. If the economy starts at point C, stagflation would be consistent with point

D.

Choose the item below that is not a routine task

Gardening

The current chair of the Federal Reserve is

Jerome Powell

Which of the following is NOT a mandatory spending budget item in the U.S. government budget?

Salary payments to military troops

The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?

both the price level and real GDP rise.

If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

buying bonds. This buying would increase the money supply.

The money supply increases when the Fed

buys bonds. The increase will be larger, the smaller is the reserve ratio.

When conducting an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

Suppose the economy begins in a short-run recessionary equilibrium. As price expectations and wages adjust and the economy moves from the short-run equilibrium to the new long-run equilibrium,

consumer spending increases as prices fall generating a movement along the AD curve

In the short-run, when the Federal Reserve increases the federal funds interest rate, aggregate demand __________ because ____________.

decreases, investment spending falls

When taxes increase, the interest rate

decreases, making the change in aggregate demand smaller.

The CBO projection for 2031 debt levels

do not include possible additional spending on infrastructure

The U.S. tax code provides incentives for all of the following EXCEPT

drinking red wine

The Federal Reserves dual final targets are

employment and inflation

For the following questions, use the diagram below:Figure 34-7. Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

a decrease in net exports.

The April jobs report showed

a large increase of new jobs in March

Some economists have compared the initial pandemic induced supply shock to

a natural disaster

The marginal propensity to consume (MPC) is defined as the fraction of

extra income that a household consumes rather than saves.

In response to a rise in energy prices, wages will eventually

fall because of the initial increase in unemployment

Permanent tax cuts shift the AD curve

farther to the right than do temporary tax cuts.

The Federal Reserve uses the ____________ as an intermediate target to affect its final targets of _____________ and ____________ .

federal funds interest rate, employment, inflation

Suppose the economy begins in a short-run recessionary equilibrium. As price expectations and wages adjust and the economy moves from the short-run equilibrium to the new long-run equilibrium,

firms are willing to produce more because input costs are falling

The Atlanta Fed's Sticky Price CPI inflation measure, tracks inflation

for goods whose prices change relatively infrequently

In which case can we be sure real GDP rises in the short run?

foreign economies expand and government purchases rise.

If the government deficit this year is $400 billion, then

government debt will increase by $400 billion

Fiat money

has no intrinsic value.

Medicare is primarily what kind of program

health insurance program for retirees

The price level rises in the short run if

aggregate demand shifts right or aggregate supply shifts left.

The economy's quick recovery from the 1980-82 recession was in part a result of

all of the above

The political independence of the Federal Reserve serves to

allow monetary policy to be formulated based on economic rather than political considerations

Which of the following events shifts aggregate demand rightward?

an increase in government expenditures, but not a change in the price level

For the following questions, use the diagram below:Figure 34-7. Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

an increase in the money supply.

When people believe that the Federal Reserve is committed to a low inflation environment, this helps to

anchor price expectations

Keynes used the term "animal spirits" to refer to

arbitrary changes in attitudes of household and firms.

Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. What happens to the price level and real GDP in the short run?

both the price level and real GDP fall

The number of retired workers rises as the baby boom generation ages. This will result in

higher mandatory spending

The longest lag associated with monetary policy is

impact lag

The following picture appears in the Paul Krugman article posted on Canvas. The picture is illustration of which of the following concepts

impact of sticky price adjustment on inflation when inflation expectations are large

Since 1969, the U.S. federal government had a budget surplus

in the late 1990s

Jobs requiring routine tasks are largely concentrated

in the middle of the wage distribution

Over the next 10 years, the share of the U.S. population over 65 years of age will

increase

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

increase by $360 billion.

When the Federal Reserve conducts an open market purchase of $40 million, the first impact is that bank reserves

increase by $40 million

Suppose stock prices rise. To offset the resulting change in output the Federal Reserve could

increase interest rates. This decrease would also move the price level closer to its value before the rise in stock prices.

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could

increase the money supply by buying bonds.

During the Great Recession, U.S. government outlays __________ and U.S. government revenues _________________.

increased, decreased

Since 1979, overall real wages at the 90th percentile of the wage distribution have _____________ while real wages at the 10th percentile have ____________ .

increased, stayed about the same

An necessary element of Federal Reserve credibility is

independence from political pressure

One reason Federal Reserve credibility is important is because

inflation expectations can be self-fulfilling and a credible Federal Reserve is better able to anchor inflation expectations

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

it increases by $150,000

Computerization/automation have led to job growth in

jobs whose tasks are largely non-routine

In 2020 federal government outlays were

just over $2 trillion higher than 2019 outlays as a result of fiscal relief spending

In a fractional-reserve banking system, a bank

keeps only a fraction of its deposits in reserve.

A reduction in U.S net exports would shift U.S. aggregate demand

leftward. In an attempt to stabilize the economy, the government could increase expenditures.

In the long-run, technological change has generally led to

little to no change in the natural rate of unemployment

The growth and inflation trends of the 1990s are consistent with which of the following

long-run supply increasing faster than aggregate demand

During the 1990s, economic conditions created

low inflation and high real output growth

A negative aggregate demand shock will have which of the following impacts in the long run.

lower prices

To lower inflation during the 1980-82 "double-dip" recession, the Federal Reserve raised the federal funds interest rate which led to

lower spending and higher unemployment

The deductibility of mortgage interest

makes home-owning less expensive for some households

In 2020 the biggest change in government outlays was in which of the following categories

mandatory

The recession of 1980-1982 was caused by

monetary policy shock initiated to lower inflation

It will likely take anywhere from 6-24 months for the low federal funds interest rate to fully affect spending, employment and inflation. This is indicative of

monetary policy's long impact lag

Consider the exhibit below for the following questions. Figure 33-4 Refer to Figure 33-4. If the economy starts at A and moves to D in the short run, the economy

moves to C in the long run.

Consider the exhibit below for the following questions. Figure 33-4 Refer to Figure 33-4. If the economy is at A and there is a fall in aggregate demand, in the short run the economy

moves to D.

Monetary policy affects employment

only in the short run.

In the short-run an increase in the costs of production makes

output fall and prices rise.

When the Federal Reserve has high credibility that it will effectively tackle inflation, then if the Fed acts to lower inflation,

price expectations and inflation quickly adjust

Social security is primarily what kind of program

provides retirement income to those who have worked

When Jerome Powell speaks of the economy being at an "inflection point" he is referring to the potential for a robust recovery as long as

public health conditions do not further deteriorate

The Biden infrastructure proposal envisions funding the additional spending by

raising corporate income taxes

Computerization and automation have led to employment polarization. Which of the following is NOT consistent with employment polarization

rising employment only in the northern and southern parts of the country

Which of the following would cause stagflation?

rising oil prices

Figure 34-8 Refer to Figure 34-8. An increase in government purchases will

shift aggregate demand from AD1 to AD2.

Figure 34-8 Refer to Figure 34-8. An increase in taxes will

shift aggregate demand from AD1 to AD3.

After the FOMC's last meeting (March 12-13), the statement (Links to an external site.) contained the following paragraph: "The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook." The paragraph is an example of

summary of economic conditions

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.

When the economy is moving from a recessionary short-run equilibrium to its long-run equilibrium, if price expectations adjust quickly then we might expect

the SRAS curve to shift down/right more quickly

Economic expansions in Europe and China would lead to which of the following outcomes in the short run

the U.S. price level and real GDP to rise.

If an aggregate demand shock initially decreases investment spending by $75 billion and the MPC equals .5, then

the aggregate demand curve shifts to the left by $150 billion

If MPC = .75 and government spending increases by $10 billion,

the aggregate demand curve shifts to the right by $40 billion

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, which of the following is NOT true

the bank will be able to use this deposit to make new loans amounting to $500

The picture below shows the value of the S&P 500 stock price index. As you can see, the value of the index has risen steadily throughout the pandemic recession. This is indicative of

the better profit position of large firms relative to small firms during this recession

The increase in investment during the 1990s information technology boom generated a decline in inflation because

the capital stock rose and increased short-run and long-run aggregate supply

Which of the following tends to make the size of a shift in aggregate demand resulting from an increase in government purchases smaller than it otherwise would be?

the crowding-out effect

Liquidity refers to

the ease with which an asset is converted to the medium of exchange.

The lag problem associated with monetary policy is due mostly to

the fact that business firms make investment plans far in advance.

Today, bank runs are not a major problem for the U.S. banking system because

the federal government now guarantees the safety of deposits at most banks.

When the Fed buys government bonds,

the money supply increases and the federal funds rate decreases.

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

the multiplier effect.

The lag problem associated with fiscal policy is due mostly to

the political system of checks and balances that slows down the process of implementing fiscal policy.

Suppose the economy is in long-run equilibrium. If there is an increase in government purchases at the same time there is a large increase in the price of oil, then in the short-run

the price level will rise, and real GDP might rise, fall, or stay the same.

The quicker that wages and price expectations adjust

the quicker will be the economy's adjust back to potential output

​Imagine the U.S. economy is in long-run equilibrium. Then suppose the aggregate demand increases. We would expect that in the long-run the price level would

​increase.

A tax cut targeted at ____ people may have a bigger effect because ​

​poorer; poorer people tend to spend a higher share of their income.

​The 2008 credit crunch occurred when banks reduced lending in response to

​the loss of asset value for mortgage backed securities and mortgage loans.

If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as

$10,000.

In 2020 the federal government's fiscal deficit was approximately

$3.1 trillion

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to

$80.

The money multiplier equals

1/R, where R represents the reserve ratio for all banks in the economy.

In 1980, inflation as measured with the PCE, reached just over

11%

If the reserve ratio is 4 percent, then the money multiplier is

25.

Using the CBO budget infographic for 2019 posted on Blackboard, what share of government outlays went toward Social Security and Medicare in 2019? Please round your answer to the nearest tenth and don't include the % sign. For example, if your calculation was 36.789%, then enter 36.8.

32

On April 16th, the Atlanta Fed's GDPnow estimate of GDP growth was ______%. (Please enter your answer without the percentage sign. For example, if your answer is 3.2%, enter 3.2.)

8.3

As of March 2021, the economy had ___________ jobs relative to February 2020.

8.4 million fewer

In March, retail sales increased by ______%. (Please enter your answer without the percentage sign. For example, if your answer is 3.2%, enter 3.2.)

9.8

Prior to an FMOC meeting, the Federal Reserve prepares a report that summarizes economic conditions in each Federal Reserve district. This report is called

Beige Book

During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.

Chapter 10 Digging Deeper

Chapter 10 Digging Deeper

Chapter 10 Quiz

Chapter 10 Quiz

Chapter 11 Digging Deeper

Chapter 11 Digging Deeper

Chapter 11 Quiz

Chapter 11 Quiz

Chapter 9 Digging Deeper

Chapter 9 Digging Deeper

Chapter 9 Quiz

Chapter 9 Quiz

Which of the following is NOT included in the Biden infrastructure proposal

Child care subsidies

The largest share of government outlays is

Mandatory spending

OTHER

OTHER

The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. What happens to the expected price level and what impact does this have on wage bargaining?

The expected price level rises. Bargains are struck for higher wages.

Suppose that the stock market experiences a significant and prolonged decline. In response, the Federal Reserve lowers the federal funds interest rate. Not long afterward the interest rate decline, there is a large positive shock to investment spending. As a result of both the monetary policy action and the investment spending shock, all of the following occur EXCEPT

consumption will fall

Social security is a "pay as you go" program. That means

current benefits to the retired are paid with current taxes paid by the non-retired workers

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

decrease by $25.5 million and the money supply eventually decreases by $170 million.

Suppose investment spending falls. To offset the change in output the Federal Reserve could

decrease interest rates. This increase would also move the price level closer to its value before the decline in investment spending.

When the Federal Reserve conducts an open market sale of government securities, we would expect bank reserves to ____________ and the federal funds interest rate to ____________.

decrease, increase

Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. If nominal wages are sticky, which of the following helps explains the change in output?

real wages rise, so firms choose to produce less

The cash that banks keep on hand or on deposit at the Federal Reserve is called

reserves

On a bank's T-account, which are part of the bank's assets?

reserves but not deposits made by its customers

One of the economic dangers of monetary policy's impact lag, is that monetary policy may

result in the economy "overshooting" the full employment goal

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

right by $70 billion.

Stagflation exists when prices

rise and unemployment rises.

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market boom shifts

short-run aggregate supply left.

Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the crisis shifts

short-run aggregate supply right.

Which of the following would cause prices to fall and output to rise in the short run?

short-run aggregate supply shifts right

Which of the following is NOT an example of U.S. government discretionary spending?

social security

In the digging deeper slides, slide #8 shows that the CBO projected debt held by the public to rise to close to 100% of GDP by 2030. This projection was before the large expenditures for economic relief from the pandemic induced downturn. The projected deficits shown on the slide arise from projected expenditures for

social security and medicare expenses for future retirees.

When government spending increases by $5 billion and the MPC = .8, in the first round of the spending multiplier process

spending increases by $5 billion

The FOMC statement normally contains which of the following EXCEPT

statistics from the Beige Book

During a more typical recession spending on services __________ while during this pandemic recession spending on services _____________.

stays about the same, decreased

Consider the exhibit below for the following questions. Figure 33-4 Refer to Figure 33-4. If the economy starts at A and there is a fall in aggregate demand, the economy moves

to C in the long run.

The logic of the multiplier effect applies

to any change in spending on any component of GDP.

If inflation expectations rise, even without any fundamental economic reasons, it is likely that the expectations themselves

will lead to higher prices and inflation