Macroeconomics Final

If the reserve ratio is 20% and the feds increase the quantity of reserves in the banking system by $150, the money supply increases by

$750

If the marginal propensity to consume is equal to .85, the spending multiplier is equal to

6.67

A required ratio of 12 percent gives rise to a simple deposit multiplier of

8.33

If a country's GDP is rising by 3% per year while its population is rising at 5% per year, which of the following is true?

A country's standard of living is falling

How can strong economic growth cause a current account deficit?

A strong economy means consumers can afford more imports

Which of the following statements is used to justify protectionism A. A country should not rely on other countries for good that are critical to its national defense B. free trade increases employment by protecting domestic firms C. free trade leads to higher prices for imported goods D. trade restrictions are not necessary to protect new firms since they can gain experience and become more productive without protection

A. A country should not rely on other countries for good that are critical to its national defense

Which of the following is not one of the sources of technological change?

Additional amounts of existing capital

Which of the following government policies would most likely result in a decrease in economic growth?

An increase in the interest rate at which the gov't provides student loans

Unanticipated inflation will: A. Hurt borrowers and lenders equally B. Hurt lenders C. Have no effect on either borrowers or lenders D. Hurt borrowers

B. Hurt lenders

Which of the following government policies would most likely result in a decrease in economic growth? A. An increase in the life of a patent from 5 years to 15 years B.An increase in the interest rate at which the government provides student loans C. An increase in government spending on grants issued through the National Institutes of Health D. Increased copyright protection on music and movies

B.An increase in the interest rate at which the government provides student loans

Which of the following is the best measure of the standard of living of a typical person in an economy? A.Inflation rate B. Unemployment rate C. Real GDP per person D. Real GDP

C. Real GDP per person

Fiscal policy is determined by

Congress and the President

Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?

Countries with a strong rule of law have faster economic growth

What is the key identity of the balance of payments?

Current account balance+capital account balance=0

Which type of unemployment is considered to be the most controllable through macroeconomic policy?

Cyclical unemployment

If a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)? A. 10.2 B. 4.7 C. 5.5 D. 0.8

D. 0.8

In 2015 the nominal rate of interest was 7 percent. The rate of inflation was 2.7 percent. The real rate of interest was: A. 2.7 percent B. 9.7 percent C. 7 percent D. 4.3 percent

D. 4.3 percent

Which of the following are consequences of unemployment? A. A rising aggregate output and income B. An increase in the money supply which increases inflation C. A rising price level, which reduces the purchasing power of Consumers D. A decline in output and income

D. A decline in output and income

Which of the following is structurally unemployed? A Raymond loses his job as a steel worker because the economy is in a downturn B. Chad graduates with his masters degree in economics and is searching for an analyst job in Oklahoma C. Edith decided to retire after working 35 years at the state prison D. Jasmine loses her job as a newspaper editor because publication has gone digital

D. Jasmine loses her job as a newspaper editor because publication has gone digital

Which of the following is included in M2 but not M1? A. Checking account deposits at bank B. Currency C. Traveler's checks D. Money market deposit accounts in banks

D. Money market deposit accounts in banks

The trade-restriction view assumes that free trade is __________ and should be ______

Harmful to domestic workers and producers; restricted

Assume that a country currently has a trade deficit. If that country experiences a recession, what would we expect to happen to the trade deficit?

Imports tend to be lower during this time, which decreases the trade deficit

What is the most significant determinant of consumption?

Income

A decrease in individual income taxes ________ disposable income, which ________ consumption spending.

Increase; increase

Which of the following is considered mandatory government spending?

Payments to social security recipients

Which of the following determines the amount of money the banking system as a whole can create?

Quantity of bank reserves

Economic growth has occurred if the

Real GDP this year exceeds the Real GDP of last year.

After an adverse supply shock occurs, the _____________- curve shifts ________________ resulting in an ______________ in the US price level and a ______________ in real GDP

SRAS, left, increase, decrease

What is the consumer price index?

The CPI is a measure of the price level based on the consumption patterns of a typical consumer

Suppose an American citizen purchases a TV from Sony (a Japanese company). Sony then uses the dollars to purchase US Treasury bonds. How will this transaction enter in the US balance of payments?

The current account will decrease; the capital account will increase

Discretionary government spending includes payments made for

The department of education

Which of the following describes the effect of the business cycle on the inflation rate and the unemployment rate?

The unemployment rate increases and the inflation rate falls during a recession

An example of fiscal policy is

a decrease in government expenditures, an increase in taxes, or both

Countries with higher rates of economic growth tend to have

a labor force that is more productive

China has developed a comparative advantage in the production of clothing. The source of this comparative advantage is

a large supply of unskilled workers and relatively little capital

Suppose an earthquake occurs in Dhaka, Bangladesh, and inflicts massive damages on the city. You raise money to send to aid the victims of the tragedy. How would this transaction be recorded?

as a decrease in the US current account

An example of a financial intermediary is a

bank

Direct finance occurs when

borrowers go directly to savers for funds

A technological advance leads to a shift in

both short run and long run aggregate supply

Tax cuts on business income increase aggregate demand by increasing

business investment spending

Aggregate demand graph shifts left, this is a result of

businesses become more pessimistic about future sales

Open market operations are the

buying and selling of government securities by the Fed

Lack of investment in strong education and health care systems

causes a deterioration in human capital and a decline in labor productivity

In the long run a country will experience an increasing standard of living only if it experiences

continuous technological change

Suppose people are worried about losing their jobs. in the short run, this will

decrease aggregate demand and output

An increase in individual income taxes ________ disposable income, which ________ consumption spending.

decrease, decrease

A decrease in the money supply will shift the aggregate _________ curve to the _________

demand;left

The interest rate that commercial bank pays when it borrows from the fed is the ___________ rate

discount

To eliminate a recessionary gap the fed typically uses _______ monetary policy, and to eliminate an inflationary gap the fed typically uses ____________ monetary policy.

expansionary; contractionary

Protection in the form of tariffs create winners and losers. Winners include _________ and losers include ___________.

firms sheltered from foreign competition; US consumers and tax payers

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in:

government purchases

Automatic stabilizers refer to

government spending and taxes that automatically increase or decrease along with the business cycle

Crowding out occurs when

governments borrow funds which can cause interest rates to rise and thus private investment is reduced

All of the following policies are ways for a country to promote long run economic growth except

imposing stricter regulations to limit foreign direct investment

If short-run equilibrium output is above full employment output, then in the long run input prices will:

increase and output will be unaffected

if the fed purchases government securities from commercial banks, the reserves of the banking system will immediately

increase by the amount of the purchase

Crowding out suggests that

increases in government spending may raise the interest rate, thereby reducing investment.

To try to eliminate a recessionary gap the fed typically ______ the money supply, and to try to eliminate an inflationary gap the fed typically __________ the money supply.

increases; decreases

Households supply loanable funds because of the

interest income received from the borrowers

When the government runs a budget deficit, we would expect to see that

investment will fall

long-run aggregate supply

is independent of price level

The ease at which a financial security can be exchanged for money is referred to as

liquidity

If the fed wants to increase the money supply, it can __________ the required reserve ratio, conduct an open market ____________, or ____________ the discount rate

lower;purchase;lower

Rising prices erode the value of money as a ____________ and an _____________

medium of exchange; store of value

If the opportunity cost of production for two goods is different between two countries, then

mutually beneficial trade is possible

Compared to bonds, stocks offer the holder

ownership in a firm

One of the reasons why the AD curve slopes downward is that as the

price level falls, purchasing power increases

The federal reserve system's four monetary policy goals are

price stability, high employment' economic growth, and stability of financial markets and institutions

Lowering the required reserve ratio ____ the simple deposit multiplier which will ______ the economy's money supply.

raises; increase

Free trade ________ living standards by ________ economic efficiency.

raises; increasing

A severe drought hits a country and reduces farm output by 50 percent. This will impact

short run aggregate supply

A budget deficit is created when the government

spends more than it receives in revenue

Workers who lose their jobs because of market innovations are considered

structurally unemployed

Savers

supply money to the financial system; borrowers demand money from the financial system

According to new growth theory,

technological change is influenced by economic incentives.

Because Whirlpool produces durable goods, the demand for their goods

tends to follow the business cycle

Which of the following would you expect to result in faster economic growth?

the invention of new computers that increase labor productivity

The two key factors that cause labor productivity to increase over time are

the quantity of capital per hour worked and the level of technology

If the consumer price index (CPI) was 100 in the period of 2009, then

this period was the base year

If the federal reserve's monetary policy is contractionary, it will

use open market operations to sell treasury bills