Econ 104 Exam 3 Practice
Expansionary fiscal policy is used by the government to...
Create new jobs in the economy
Some economists claim World War II ended the Great Depression of the 1930's. The war effort was financed by borrowing massive sums of money from the public. How could a war end a recession?
If government spending increases and taxes do not change, then the amount of planned expenditures will increase which can cause the equilibrium level of income to rise
Y = 1,000; C = 100 + 0.75(Y -T); I = 85; G = 150; T = 100 Output will need to ________ to move the economy to equilibrium.
Increase
When taxes are cut by $1, planned expenditures...
Increase by less than $1 and the equilibrium level of income will increase by $1 times the tax multiplier
If the head of the Central Bank of Brazil wanted to increase the supply of money in Brazil in 2015, how would it be done? This action will...
Increase credit availability and raise the money supply
- Consumption Function: C = 200 +0.80Y -Investment Function: I = 300 - Aggregate Expenditure Function: AE = C + I -Equilibrium: AE = Y The level of eqilibrium income, Y, is
$2,500
A bank has deposits of $25,000 and the required reserve ratio is 20 percent. This bank can make loans up to...
$20,000
In 1946, the federal government debt was $271 billion and GDP was $222.2 billion. In 2009, the federal government debt was $9.99 trillion and GDP was $14.1 trillion. The percentage of the federal debt relative to GDP in 1946 was_______
121.96%
If the required reserve ratio is 5 percent, the money multiplier is...
20
C = 240 + 0.72Y Autonomous consumption is...
240
MPC = .75 MPS = .25 What is the Multiplier?
4
- Consumption Function: C = 200 +0.80Y -Investment Function: I = 300 - Aggregate Expenditure Function: AE = C + I -Equilibrium: AE = Y The value of the investment multiplier is...
5
In 1946, the federal government debt was $271 billion and GDP was $222.2 billion. In 2009, the federal government debt was $9.99 trillion and GDP was $14.1 trillion. The percentage of the federal debt relative to GDP in 2009 was_______
70.85%
Y = 1,000; C = 100 + 0.75(Y -T); I = 85; G = 150; T = 100 What is Consumption (C)?
775
An increase in planned investment will increase equilibrium income of those working on that investment project, thereby...
Increasing their consumption, and creating more income and more spending multiple times over and over
What institution has formal responsibility for setting U.S. monetary policy?
The FOMC (Federal Open Market Committee)
When the Fed provides funds to troubled banks that cannot find any other sources of funds, it is acting as...
The lender of last resort
If the FOMC orders the open market desk to sell government securities,
The money supply will increase, and the interest rate will decrease
Aggregate output is equal to...
The total quantity of goods and services produced in an economy during a given period
Disposable income is equal to...
Total income minus net taxes
Aggregate income is equal to...
Total income received by all factors of production during a given period
A bank can make loans from deposits if it is meeting the reserve requirement. True or False
True
At equilibrium, saving is equal to planned investment. True or False?
True
In absolute value, the tax multiplier is smaller than the government spending multiplier. True or False?
True
Net worth is equal to assets minus liabilities. True or False
True
The budget deficit is calculated as government spending minus tax revenues. True of False?
True
The optimism or pessimism of entrepreneurs about the future course of the economy can have an important effect on current planned investment. True or False?
True
The total value of M2 is always larger than the value of M1 True or False
True
When a bank's excess reserves are zero, it can no longer make loans. True or False
True
When money is used to quote the price of a product, it is functioning as a...
Unit of account
Why is M2 sometimes a more stable measure than M1?
When funds are shifted between monetary assets, sometimes this will only affect M1 but will not affect M2
With a consumption function of C = a + b(Y - T), the government spending multiplier is represented as a.) -1 / (1 - b) b.) 1 / (1 - b) c.) a + bY - bT d.) a + I + G - bT
b.) 1 / (1 - b)
In the consumption function C = a + bY, the marginal propensity to consume is represented by... a.) a b.) b c.) C d.) Y
b.) b
Which of the following statements is true? a.) Both actual investment and planned investment include unplanned inventory changes b.) Neither actual investment not planned investment include unplanned inventory changes c.) Actual investment includes unplanned inventory changes but planned investment does not d.) Planned investment includes unplanned inventory changes but actual investment does not
c.) Actual investment includes unplanned inventory changes but planned investment does not
Household consumption is affected by which of the following? a.) Wealth b.) Future Expectations c.) Interest Rates d.) All of the above
d.) All of the above
If the marginal propensity to consume is 0.8 and the government increases taxes by $1,000, the equilibrium level of output will decrease by...
$4,000
If the marginal propensity to consume is 0.8 and the government increases spending by $1,000, the equilibrium level of output will increase by...
$5,000
- Consumption Function: C = 200 +0.80Y -Investment Function: I = 300 - Aggregate Expenditure Function: AE = C + I -Equilibrium: AE = Y Suppose the level of investment increases by $ The change in the level of equilibrium income if investment increases by $15 is...
$75
Y = 1,000; C = 100 + 0.75(Y -T); I = 85; G = 150; T = 100 Planned Aggregate Expenditure (AE) is...
1,010
It is determined that when the government spending decreases by $100 billion, income falls by $600 billion. In this economy the value of the MPS is...
.16
- Consumption Function: C = 200 +0.80Y -Investment Function: I = 300 - Aggregate Expenditure Function: AE = C + I -Equilibrium: AE = Y The MPS is...
.20
C = 240 + 0.72Y MPC is...
.72
- Consumption Function: C = 200 +0.80Y -Investment Function: I = 300 - Aggregate Expenditure Function: AE = C + I -Equilibrium: AE = Y The MPC is...
.80
It is determined that when the government spending decreases by $100 billion, income falls by $600 billion. In this economy the value of the MPC is...
.84
Since additional income can be either saved or consumed, MPC + MPS = ...?
1
The two equivalent formulas for the Investment Multiplier are:
1 / 1 - MPC and 1 / MPS
When government spending increases by $1, planned expenditures increase by $1...
And the equilibrium level of income will increase by $1 times the spending multiplier
Using money as a medium of exchange is more efficient than a barter system because..
Barter requires a double coincidence of wants
Which of the following best describe the functions of Federal Reserve?
Clearing interbank payments, regulating the banking system, and managing the nation's foreign exchange reserves
All else equal, increasing interest rates will likely ________ the level of planned investment spending
Decrease
If the head of the Central Bank of Brazil wanted to increase the supply of money in Brazil in 2015, how would it be done?
Decrease required reserve ratio
If MPC decreases, the value of the investment multiplier...
Decreases
If the Fed makes an open market sale of government securities, the money supply______
Decreases
Aggregate output is always ________ aggregate income
Equal to
The MPS is...
Equal to the additional income that is saved
The MPC is...
Equal to the fraction of additional income that is consumed
Barter refers to the direct exchange of goods and services for money. True or False
False
In reality, the size of the multiplier is about 5. True or False?
False
Banks borrow not only from the Fed but also from each other. What is the interest rate in this market called?
Federal funds rate
The interest rate banks are changed to borrow reserves from other banks is called the...
Federal funds rate
The multiplier is...
Finite because a portion of income is saved
If planned investment increases by $200, the change in equilibrium output will be_______ $220
Greater than
I = 1500 - 40r Determine the value of planned investment when the interest rate is 5 percent (r = 5) I = ?
I = 1300
What explains the relationship between aggregate expenditure and real GDP?
If aggregate expenditure falls short of real GDP, inventories will accumulate and real GDP and aggregate income will fall in future
This change in planned investment spending occurs because higher interest rates mean that...
It is more expensive to borrow money to pay for projects
A banks assets include its _______ and a bank's liabilities include its _______
Loans; deposits
Money in demand deposit accounts, such as checking in accounts, is included in the measure of...
M1 and M2
The economy is beginning to slip into a recession. Further, data indicate that inflation is low. The Fed will most likely respond to this state of the economy by....
Purchasing government securities to lower the interest rate
The three traditional tools the Fed can use to control the interest rate via changing the money supply are the...
Required reserve ratio, changing the discount rate, and engaging in open market operations
Marginal Propensity to Consume (MPC) is found by....
Rise/Run or C/Y
If the Fed wants to decrease the money supply, it could...
Sell treasury securities
The deficit tat remains at full employment is called the...
Structural deficit