Macroeconomics Chapters 30, 34, 36, and 40 Study Guide

quota.

A maximum limit set on the amount of a specific good that may be imported into a country over a given period of time is called a

increase the price and sales of domestic producers.

A protective tariff will

7.4 percent.

An inflation rate of 8 percent would erode the purchasing power of the dollar by

Federal Open Market Committee.

As it relates to Federal Reserve activities, the acronym FOMC describes the

is the practice of selling goods in a foreign market at less than cost.

As it relates to international trade, dumping

$16 billion, and also by $16 billion if the securities are purchased directly from commercial banks.

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. If the securities are purchased from the general public, this action has the potential to increase money supply by a maximum of

"You can lead a horse to water, but you can't make it drink."

Assume the Fed creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad. This situation is a problem of

$10 billion.

Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be

income levels.

Benefits from international trade are based on differences in the following areas, except

a liability as viewed by the Federal Reserve Banks.

Federal Reserve Notes in circulation are

solvent.

If a firm possesses assets whose value exceeds the value of its debts, the firm is said to be

decrease by $75.

If disposable income decreases from $1,800 to $1,500 and MPC = 0.75, then saving will

each nation must be able to produce at least one good relatively cheaper than the other.

In order for mutually beneficial trade to occur between two otherwise isolated nations,

less costly for banks to hold excess reserves.

Raising the interest paid on reserves has the effect of making it

True

T or F A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

False

T or F Bond prices and interest rates are directly or positively related.

True

T or F If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times a year.

True

T or F In 2018, the United States was the largest exporter in the world.

False

T or F Subprime mortgage loans are so named because the rates charged are below the prime interest rate.

protect it from political pressure.

The reason for the Fed being set up as an independent agency of government is to

the multiplier.

(Last Word) Art Buchwald's article "Squaring the Economic Circle" is a humorous description of

tax.

A tariff is a

the deposits held by banks and thrifts on which checks can be written.

Checkable deposits include

saving more.

If households consume less at each level of disposable income, they are

the MPC is constant and the APC declines as income rises.

The consumption schedule is such that

an increase in the excess production capacity available in industry.

The investment demand curve will shift to the left as a result of

1 − MPS

What is the slope of the consumption schedule or consumption line for a given economy?

if inflation rises by 1 percentage point above its target, then the Fed should raise their targeted interest rate by one-half a percentage point.

According to the Taylor rule,

3

If the MPS is only half as large as the MPC, the multiplier is

will shift downward.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule

False

T or F 1 + MPS = MPC.

False

T or F A decline in the real interest rate will shift the investment demand curve to the right.

Federal Reserve Banks.

Paper money (currency) in the United States is issued by the

True

T or F The U.S. has a trade surplus in services.

is the subset of the EU that uses a common currency.

The "eurozone"

Buyers owe more on their mortgage than the properties are worth.

What does it mean when economists say that home buyers are "underwater" on their mortgages?

a means of payment.

When economists say that money serves as a medium of exchange, they mean that it is

increased and the multiple by which the commercial banking system can lend is increased.

When the required reserve ratio is decreased, the excess reserves of banks are

The increase in excess reserves in the banking system virtually eliminated the need for banks to borrow in the federal funds market.

After the 2008 financial crisis, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

fall.

All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually

a means of payment.

An asset's liquidity refers to its ability to be

increase the interest rate and reduce the price level, assuming it is flexible downward.

If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will

investment will take place until i and r are equal.

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,

is 0.25.

If the slope of the consumption schedule is 0.75, then the slope of the saving schedule

decrease to 0.5 percent.

If there is a 2 percent unemployment gap and the inflation rate is 1 percent, then according to the Taylor rule, the Fed should make their targeted interest rate

The APC rises and the APS falls

If there is a decrease in disposable income in an economy, then

slope of the consumption schedule is 0.8.

In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the

the Fed pursued quantitative easing.

In response to the zero lower bound problem,

M1 increases and M2 stays the same

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

commercial banks.

Money supply M1 does not include the currency held by

the U.S., Mexico, and Canada.

NAFTA established a free-trade area and eliminated trade barriers between

escape the complications of barter.

One major advantage of money serving as a medium of exchange is that it allows society to

sets policy on the sale and purchase of government bonds by the Fed.

The Federal Open Market Committee (FOMC).

are appointed for 14-year terms.

The members of the Federal Reserve Board

the diversification-for-stability argument

Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary?

Open-market operations are done to lower interest rates; quantitative easing is done to increase the quantity of bank reserves.

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

an increase in the possibility of retaliatory tariffs

Which of the following is a likely result of imposing tariffs to increase domestic employment?

Wage rates in a nation are largely determined by productivity, not trade tariffs.

Which of the following is a valid counterargument against using tariffs to protect high wages from cheap foreign labor?

APC + APS = 1.

Which of the following is correct? A. APC + APS = 1. B. APC + MPS = 1. C. APS + MPC = 1. D. APS + MPS = 1.

$200,000 balance in the checking account of Main Street Trading Corp.

Which of the following is included as part of the M1 money supply?

savings deposits

Which of the following items are included in money supply M2 but not M1?

Quantitative easing refers to the Fed's use of open-market operations to buy trillions of dollars' worth of medium- and longer-maturity financial assets.

Which of the following statements about quantitative easing is most accurate?

open-market operations

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?