Macroeconomics Practice Final

Economies where goods and services are traded directly for other goods and services are called ________ economies.

barter

tax cuts on business income increase aggregate demand by increasing

business investment spending

the level of aggregate supply in the long run is not affected by

changes in the price level

which of the following is considered contractionary fiscal policy

congress increases the income tax rate

the federal open market committee consists of the seven members of the ---, the president of the federal reserve bank of new york, and ----

federal reserve's board of governors; four presidents from the other 11 federal reserve banks

the crowding out of private spending by gov spending will be greater the

more sensitive consumption, investment, and net exports are to changes in interest rates

the main tool that the federal reserve uses to conduct monetary policy is

open market operations

the short run aggregate supply curve has a ---- slope bc as prices of ---- rise, prices of ---- rise more slowly

positive; final goods and services; inputs

full employment GDP is also known as

potential GDP

the tax increases necessary to fund future social security and medicare benefit payments would be

large, and could discourage work effort, entrepreneurship and investment, thereby slowing economic growth

Potential GDP refers to the level of

real GDP in the long run

the major assets on a bank's balance sheet are its

reserves, loans, and holdings of securities

If the central bank can act as a lender of last resort during a banking panic, banks can

satisfy customer withdrawal needs and eventually restore the public's faith in the banking system

gov transfer payments include which of the following

social security and medicare programs

before the great depression of the 1930s, the majority of government spending took place at the --- and after the great depression the majority of gov spending took place at the ---

state and local levels; federal level

If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?

store of value

which of the following functions of money would be violated if inflation were high

store of value

T or F: expansionary fiscal policy involves increasing gov purchases or increasing taxes

False

T or F: a decrease in disposable income will shift the aggregate demand curve to the left

True

T or F: an appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes

True

a bank will consider a car loan to a customer --- and a customer's checking account to be ----

an asset; a liability

if aggregate demand just increased, which may have caused the increase

an increase in government purchases

the increase in gov spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in gov spending on unemployment insurance payments to workers during an expansion is an example of

automatic stabilizers

bank reserves include

vault cash and deposits with the Federal Reserve.

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

$5000

Fiscal policy is determined by

Congress and the President

monetary policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.

interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run

aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise

contractionary monetary policy on the part of the fed results in

a decrease in the money supply, an increase in interest rates, and a decrease in GDP

bc of the slope of the aggregate demand curve, we can say that

a decrease int he price level leads to a higher level of real GDP demanded

which of the following would cause the short run aggregate supply curve to shift to the right

a technological advance

what shows the relationship between the price level and quantity of real GDP demanded?

aggregate demand curve

an increase in individual income taxes -- disposable income, which --- consumption spending

decreases decreases

An increase in the interest rates

decreases investment spending on machinery, equipment and factories, consumption spending on durable goods, and net exports.

an increase in gov purchases will increase aggregate demand because

gov expenditures are a component of aggregate demand

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:

gov purchases

automatic stabilizers refer to

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

which of the following is an objective of fiscal policy

high rates of economic growth

T or F: One of the monetary policy goals of the federal reserve is price stability

true

deflation will

increase the quantity of real GDP demanded

the largest source of federal gov revenue in 2008 was

individual income taxes

which of the following is not a function of the federal reserve system or the Fed

insuring deposits in the banking system

the invention of the cotton gin ushered in the industrial revolution and began a long period of technological innovation. What did this technological change do to the short run supply curve?

it shifted the short run aggregate supply curve to the right

When the aggregate demand curve and the short-run aggregate supply curve intersect,

the economy is in short run macroeconomic equilibrium

which of the following would be classified as fiscal policy

the federal gov cuts taxes to stimulate the economy

The use of fiscal policy to stabilize the economy is limited because

the legislative process can be slow, which means that it is difficult to make fiscal policy actions ina timely way

If stricter immigration laws are imposed and many foreign workers in the United States are forced to go back to their home countries,

the long run aggregate supply curve will shift to the left

Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result,

the short run aggregate supply curve will shift to the let as wages increase

which of the following does not reflect the state of the tax system in the U.S today?

the tax laws have become increasingly simplified as private citizens have demanded these changes

the recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve

this will shift the aggregate demand curve to the left

the largest and fastest growing category of federal gov expenditures is

transfer payments