unit 3

TARP, created in 2008, stands for: Toxic Asset Relief Program Toxic Asset Reinvestment Policy Troubled Asset Recovery Plan Troubled Asset Relief Program

Troubled Asset Relief Program

The amount by which government expenditures exceed revenues during a particular year is the: budget deficit. public debt. GDP gap. full employment.

budget deficit

According to Congressional Budget Office (CBO) projections: -Social Security will become insolvent by 2017. -budget deficits are expected to give way to surpluses by the year 2017. -budget deficits are expected to remain large for the next several years. -expiration of tax cuts in 2015 will cause the budget deficit to rise to record highs by 2017.

budget deficits are expected to remain large for the next several years.

Currency held in the vault of First National Bank is: counted as part of M1. counted as part of M2 but not M1. only counted as part of M1 if it was deposited into a checking account. not counted as part of the money supply.

not counted as part of the money supply.

In 2009, approximately how much of the money on deposit was held by the three largest U.S. banks? 90 percent. 50 percent. 30 percent. 70 percent.

30 percent

Which of the following statements is correct for a private closed economy? -All levels of GDP where planned investment exceeds saving will be too high for equilibrium. -Saving equals actual investment only at the equilibrium level of GDP. -Saving equals planned investment only at the equilibrium level of GDP. -Planned and actual investments are identical at all possible levels of GDP.

-Saving equals planned investment only at the equilibrium level of GDP.

In response to the Great Recession, the federal government engaged in significant deficit-funded spending. While it kept the recession from getting worse, and did result in some positive economic growth, it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective? -Offsetting monetary policy caused the aggregate demand to remain virtually unchanged, meaning that all gains in output came from aggregate supply shifts. -The fiscal stimulus caused a significant leftward shift of aggregate supply. -Despite the fiscal stimulus, aggregate demand continued to shift to the right. -The fiscal stimulus shifted aggregate demand to the right, but not enough to restore full employment.

-The fiscal stimulus shifted aggregate demand to the right, but not enough to restore full employment.

Efficiency wages are: -wage payments necessary to compensate workers for unpleasant or risky work conditions. -usually less than market wages. -above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages. -relevant to macroeconomics because they explain rightward shifts in aggregate demand.

-above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

Discretionary fiscal policy is so named because it: -is invoked secretly by the Council of Economic Advisers. -is undertaken at the option of the nation's central bank. occurs automatically as the nation's level of GDP changes. -involves specific changes in T and G undertaken -expressly for stabilization at the option of Congress.

-involves specific changes in T and G undertaken

A major advantage of the built-in or automatic stabilizers is that they: -automatically produce surpluses during recessions and deficits during inflations. -guarantee that the federal budget will be balanced over the course of the business cycle. -simultaneously stabilize the economy and reduce the absolute size of the public debt. -require no legislative action by Congress to be made effective.

-require no legislative action by Congress to be made effective.

The aggregate supply curve: -is explained by the interest rate, real-balances, and foreign purchases effects. -is downsloping because real purchasing power increases as the price level falls. -shows the various amounts of real output that businesses will produce at each price level. -gets steeper as the economy moves from the top of the curve to the bottom of the curve.

-shows the various amounts of real output that businesses will produce at each price level.

Which of the following would increase GDP by the greatest amount? A $20 billion increase in government spending $20 billion increases in both government spending and taxes A $20 billion reduction in taxes $20 billion decreases in both government spending and taxes

A $20 billion increase in government spending

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)? An appreciation of the U.S. dollar. A reduced amount of excess capacity. Increased government spending on military equipment. Increased consumer optimism regarding future economic conditions.

An appreciation of the U.S. dollar.

Which of the following is not considered a legitimate concern of a large public debt? Disincentives created by higher taxes. Bankruptcy of the federal government. Increased income inequality. Crowding-out of private investment.

Bankruptcy of the federal government.

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the: Federal Deposit Insurance Corporation (FDIC). Federal Bond Sale Authority. Council of Economic Advisers. Federal Open Market Committee (FOMC).

Federal Open Market Committee (FOMC).

Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008? -From March 2008 to February 2009, the Fed experienced a 50 percent decline in the value of assets held. -From February 2008 to March 2009, Fed assets more than doubled to nearly $2 trillion. -From February 2008 to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen. -From February 2008 to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

From February 2008 to March 2009, Fed assets more than doubled to nearly $2 trillion.

Which of the following statements concerning the equilibrium level of GDP is incorrect? There will be no tendency for businesses to alter the aggregate rate of production. Full employment will necessarily be realized. No unintended changes in inventories will occur. Leakages equal injections.

Full employment will necessarily be realized.

In a mixed open economy, if aggregate expenditures exceed GDP: Ig + X + G > Sa + M + T. Ig > S. Ca + Ig + Xn + G < domestic output. Ig + X + G = Ca.

Ig + X + G > Sa + M + T.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? -Reductions in federal tax rates on personal and corporate income. -A congressional proposal to incur a federal surplus to be used for the retirement of public debt. -Postponement of a highway construction program. -Reductions in agricultural subsidies and veterans' benefits.

Reductions in federal tax rates on personal and corporate income.

In a mixed open economy, the equilibrium GDP is determined at that point where: Sa + X + G = Ig + T. the 45-degree line and the saving schedule intersect. Sa + Ig + X = G + T. Sa + M + T = Ig + X + G.

Sa + M + T = Ig + X + G.

In a mixed open economy, which of the following all affect the equilibrium GDP in the same direction? Sa, T, and M. Ig, T, and Ca. Ca, Ig, Sa, and M. Sa, Ig, and X.

Sa, T, and M.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: an economic investment. a medium of exchange. a store of value. a unit of account.

a medium of exchange.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.: aggregate demand curve would shift to the right. aggregate demand curve would shift to the left. aggregate supply curve would shift to the left. aggregate supply curve would shift to the right.

aggregate demand curve would shift to the right.

Currency in circulation is part of: M2 not including M1. M1 only. neither M1 nor M2. both M1 and M2.

both M1 and M2.

Wells Fargo, J.P. Morgan Chase, and Citibank are all primarily: commercial banks. insurance companies. mutual fund companies. securities firms.

commercial banks

The aggregate demand curve is: -horizontal when there is considerable unemployment in the economy. -vertical under conditions of full employment. -downsloping because production costs decrease as real output rises. -downsloping because of the interest-rate, real-balances, and foreign purchases effects.

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

The value of money varies: directly with the price level. inversely with the price level. directly with the volume of employment. directly with the interest rate.

inversely with the price level.

The equilibrium price level and level of real output occur where: the price level is at its lowest level. real output is at its highest possible level. the aggregate demand and supply curves intersect. exports equal imports.

the aggregate demand and supply curves intersect.

The "shadow banking system" refers to: -the provision of credit through the underground economy when the financial crisis of 2007 and 2008 occurred. -mortgage loans made to homebuyers who are poor credit risks. -the series of illegal financial transactions that precipitated the financial crisis of 2007 and 2008. -the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.

the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.

To say that the Federal Reserve Banks are quasi-public banks means that: they deal only with banks of foreign nations and do not have direct business contact with U.S. banks. they are publicly owned but privately managed. they are privately owned but managed in the public interest. they deal only with commercial banks, and not the public.

they are privately owned but managed in the public interest.

The cyclically adjusted budget tells us: -the actual budget deficit or surplus realized in any given year. -that tax revenues should vary inversely with GDP. -what the size of the federal budget deficit or surplus would be if the economy was at full employment. -that in a full-employment economy, the federal budget should be in balance.

what the size of the federal budget deficit or surplus would be if the economy was at full employment.

The real-balances, interest-rate, and foreign purchases effects all help explain: shifts in the aggregate supply curve. shifts in the aggregate demand curve. why the aggregate supply curve is upsloping. why the aggregate demand curve is downsloping.

why the aggregate demand curve is downsloping.