Econ 2200: Exam 2 Review

B) False

Discretionary spending is higher than mandatory spending at the federal government level. A) True B) False

A) True

One argument against using taxation to pay off the public debt is that it will redistribute wealth from people who do not hold bonds to bondholders. A) True B) False

A) True

One reason real output declines when the aggregate price level rises is the reduction in the purchasing power of money. A) True B) False

B) SRAS1; P1

(Figure: Determining SRAS Shifts) If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will shift to A) SRAS1; P0 B) SRAS1; P1 C) SRAS2; P1 D) SRAS2; P2

B) Company B

(Table: Retirement Plans for Four Companies) Given the information in the table, which company's retirement plan would provide the smallest employer match to an employee who retires after 6 years of employment? A) Company A B) Company B C) Company C D) Company D

A) True

A crowding-out effect occurs when government borrowing raises interest rates and discourages investment spending. A) True B) False

A) aggregate expenditures

According to Keynes, what determines the level of employment and income? A) aggregate expenditures B) aggregate savings C) government spending D) aggregate supply

B) False

As GDP decreases, tax revenues increase, causing GDP to contract. A) True B) False

C) the quantity supplied of loanable funds decreases.

As the real interest rate falls: A) the supply of loanable funds increases. B) the supply of loanable funds decreases. C) the quantity supplied of loanable funds decreases. D) more saving is supplied to the market.

C) a small loan balance becomes large.

Because of the compounding effect: A) people with high credit scores often have difficulty obtaining loans. B) people with low credit scores often have difficulty obtaining loans. C) a small loan balance becomes large. D) a large loan balance becomes smaller.

D) lower; more liquid

Checking deposits generally have a _____ return on investment than do certificates of deposit because checking deposits are _____. A) higher; less liquid B) higher; more liquid C) lower; less liquid D) lower; more liquid

A) M1

Currently, _____ is equal to roughly $2.5 trillion, and it is the most liquid part of the money supply. A) M1 B) M2 C) M3 D) M4

A) True

Externally held debt is public debt held by foreigners. A) True B) False

B) False

Government spending on public investment is more likely to hurt future generations than is government spending on current consumption. A) True B) False

B) False

If a $1,000 bond is issued with a coupon rate of 11% and the market interest rate drops to 7%, the trading price of that bond will drop. A) True B) False

C) Short-run aggregate supply will rise due to lower prices on imported inputs.

If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply? A) Aggregate demand will rise because the currency will buy more abroad. B) Long-run aggregate supply will rise because investment returns will rise. C) Short-run aggregate supply will rise due to lower prices on imported inputs. D) Long-run aggregate supply will fall because imports will rise.

A) True

If the marginal propensity to consume is 0.8, then $80 of every additional $100 of income will be spent on consumption. A) True B) False

A) positively sloped; not completely flexible

In the short run, the aggregate supply curve is _____ because input prices are _____. A) positively sloped; not completely flexible B) positively sloped; completely flexible C) vertical; not completely flexible D) vertical; completely flexible

A) True

John Maynard Keynes's analysis was based on an economy whose resources were underutilized. A) True B) False

D) two-thirds

Mandatory spending comprises nearly _____ of the federal budget. A) one-fourth B) one-third C) one-half D) two-thirds

A) True

Missing a minimum payment on your credit card can make it more expensive for you to get a car loan in the future. A) True B) False

A) medium of exchange

Money is considered a _____ because it is generally accepted as payment for goods and services. A) medium of exchange B) unit of account C) store of value D) barter instrument

C) the proportion of the debt held by foreigners is rising.

One issue regarding the national debt is that: A) the Treasury Department may refuse to pay the bondholders. B) U.S. taxpayers supply the funds that go to the interest on bonds held by them. C) the proportion of the debt held by foreigners is rising. D) it will bankrupt the nation.

A) True

Policymakers can increase output by enacting policies that expand government spending, consumption, investment, or net exports and they could also reduce taxes. A) True B) False

C) externally held

Public debt held by foreigners is known as _____ debt. A) out-of-country B) internally held C) externally held D) improper

B) False

Reducing investment and expanding business regulation can increase aggregate supply. A) True B) False

D) $25; $15

Suppose the Treasury sells $10 billion worth of securities to the Social Security Administration and $15 billion to the general public. This sale would add _____ billion to gross public debt and _____ billion to the debt held by the public. A) $15; $15 B) $10; $15 C) $15; $25 D) $25; $15

A) helps; hurts

The compounding effect _____ savers and _____ borrowers. A) helps; hurts B) helps; helps C) hurts; hurts D) hurts; helps

B) False

The full-employment level is greater than the natural rate of employment. A) True B) False

C) selling assets.

The government can finance a budget deficit by: A) buying bonds from the Federal Reserve. B) buying bonds from the public. C) selling assets. D) buying assets.

B) False

The market does not necessarily clear in the long-run macroeconomic equilibrium. A) True B) False

B) False

The supply of loanable funds includes only private savings. A) True B) False

A) annually balanced budget

What approach to federal finance would you agree with if you wanted federal government revenues to equal federal government expenditures every year? A) annually balanced budget B) cyclically balanced budget C) functional finance D) trade-balanced budget

D) a school

Which of these is NOT a financial intermediary in the market for loanable funds? A) credit unions B) mutual funds C) an insurance company D) a school

A) True

An increase in interest rates will cause the aggregate demand curve to shift to the left. A) True B) False

A) True

The Federal Reserve no longer collects information about M3. A) True B) False

C) the coupon payment is fixed for the life of a bond.

The reason bond prices and interest rates are inversely related is because: A) bond prices are fixed for the life of a bond. B) market interest rates stay the same for the life of a bond. C) the coupon payment is fixed for the life of a bond. D) bonds are always perpetuities.

B) shift the aggregate supply curve to the right.

A breakthrough in solar energy research that halves the cost of electricity will: A) have no effect on the aggregate supply curve. B) shift the aggregate supply curve to the right. C) shift the aggregate supply curve to the left. D) cause the aggregate supply curve to become vertical.

A) True

If a person borrows $2,000 at 5% interest and never makes any payments, the loan balance will be $2,205.00 after two years. A) True B) False

A) prices decrease and output increases.

If an advance in technology shifts the long-run aggregate supply curve outward: A) prices decrease and output increases. B) prices increase and output decreases. C) prices remain stable and output decreases. D) None of the answers is correct.

D) the short-run aggregate supply curve will shift to the left.

If an expansionary policy pushes output beyond the full employment level of GDP: A) the economy will undergo deflation. B) the natural rate of unemployment will fall. C) production costs will decrease. D) the short-run aggregate supply curve will shift to the left.

A) True

If the government issues receipts for goods and services and declares the receipts to be money, then those receipts are considered to be fiat money. A) True B) False

C) 2.5.

If the marginal propensity to consume is 0.6, then the spending multiplier is: A) 6. B) 4. C) 2.5. D) 2.

B) unit of account

Serving as a _____ is a function of money that gives us a yardstick by which we can measure and compare the values of a wide variety of goods and services. A) medium of exchange B) unit of account C) store of value D) medium of interaction

B) decrease in aggregate demand.

Suppose the government raises income taxes, so consumers have less take-home pay. A) increase in aggregate demand. B) decrease in aggregate demand. C) increase in short-run aggregate supply. D) decrease in short-run aggregate supply.

B) False

The government spending multiplier is smaller than the government tax multiplier. A) True B) False

A) True

The income tax is a powerful stabilizer because of its progressivity. A) True B) False

B) foreigners

The interest paid on public debt held by _____ is a real claim on American goods and services. A) U.S. banks B) foreigners C) U.S. citizens D) the Federal Reserve

B) closer GDP gets to the natural rate of output.

The more time a free market economy has to adjust to price changes, the: A) greater the rate of inflation. B) closer GDP gets to the natural rate of output. C) closer the economy gets to the horizontal portion of the aggregate demand curve. D) more volatility is seen in the business cycle.

D) savers; upward sloping

The supply curve for loanable funds represents _____ and is _____. A) investors; vertical B) investors; upward sloping C) savers; vertical D) savers; upward sloping

C) functional finance

What approach to federal finance would you agree with if you were most concerned with the federal government's pursuit of fostering economic growth, stable prices, and full employment? A) annually balanced budget B) cyclically balanced budget C) functional finance D) trade-balanced budget

B) Aggregate supply shifts to the right.

What happens if business expectations improve? A) Aggregate supply shifts to the left. B) Aggregate supply shifts to the right. C) Aggregate demand shifts to the left. D) Aggregate demand shifts to the right.

C) $1,100 with an interest rate of 3%.

When Jay wins a contest, he is able to choose one prize from four options. He chooses a 4-year certificate of deposit that will accumulate interest and cannot be cashed in until maturity in four years. Given the options below, which prize would provide Jay with the largest value four years from now? A) $1,000 with an interest rate of 4%. B) $850 with an interest rate of 8%. C) $1,100 with an interest rate of 3%. D) $940 with an interest rate of 6%.

A) demand deposits

Which asset is the MOST liquid? A) demand deposits B) real estate C) stocks D) an art collection

B) a decrease in corporate taxes

Which of the following will NOT shift the aggregate supply curve to the left? A) an increase in the minimum wage B) a decrease in corporate taxes C) an increase in the price of crude oil D) an increase in the legislated amount of paid vacation

A) an increase in the minimum wage

Which of the following will shift the short-run aggregate supply curve to the left? A) an increase in the minimum wage B) a decrease in immigration from other countries C) a decrease in the price of oil D) a decrease in the actual price level

B) Taxes

_____ are components of consumer spending that affect aggregate demand. A) Expected rates of return on investment B) Taxes C) Exchange rate changes D) Government spending programs

B) Tax rate reductions

_____ has (have) an impact on both aggregate demand and aggregate supply A) Encouragement of new technologies B) Tax rate reductions C) Investment in human capital D) Increasing transfer payments

B) Lowering; offering investment tax credits

_____ marginal tax rates and _____ are commonly used to increase aggregate supply. A) Lowering; increasing government transfer payments B) Lowering; offering investment tax credits C) Raising; increasing government transfer payments D) Raising; reducing government spending

B) a depreciation in the value of Macroland's currency

Assume that Macroland is a country that imports 70% of the inputs used in its production and 40% of the products consumed. It has an overall trade balance. Which of the following events would cause Macroland's short-run aggregate supply curve to shift to the left? A) an increase in the average education level of the labor force B) a depreciation in the value of Macroland's currency C) an increase in consumption taxes and a decrease in corporate income taxes D) a surge in the value of stocks exchanged on Macroland's stock market

D) saving by the public, government entities, and business firms.

The supply of loanable funds includes: A) saving by the public. B) saving by government entities. C) saving by business firms. D) saving by the public, government entities, and business firms.

C) Employers often match 401(k) contributions, but they do not match IRA contributions.

What is a difference between the typical structure of a retirement savings account (401(k)) and an individual retirement arrangement (IRA)? A) IRAs typically earn interest, but 401(k) accounts typically earn dividends. B) IRA contributions are typically made with pre-tax income while 401(k) contributions are made with post-tax income. C) Employers often match 401(k) contributions, but they do not match IRA contributions. D) Taxes are due on withdrawals from an IRA but not on withdrawals from a 401(k) account.

D) a shift to the right of the SRAS curve

What would cause the price level to decrease and employment to increase? A) a shift to the left of the AD curve B) a shift to the right of the AD curve C) a shift to the left of the SRAS curve D) a shift to the right of the SRAS curve

D) large-denomination time deposits

Which asset is NOT included in M2? A) currency B) demand deposits C) savings deposits D) large-denomination time deposits

B) Government environmental regulations require the use of more expensive energy sources.

Which of the following events would reduce short-run aggregate supply but not long-run aggregate supply? A) A major natural disaster results in the loss of life of 10% of the labor force. B) Government environmental regulations require the use of more expensive energy sources. C) The capital stock of a country rises by 10%. D) Concentration in the leading industries in a country falls.

B) crowding-out lag

Which of the following is NOT a fiscal policy timing lag? A) information lag B) crowding-out lag C) recognition lag D) implementation lag

C) government saving

Which of the following items is NOT a determinant of aggregate demand? A) consumption B) investment C) government saving D) government spending

A) The unemployment compensation program pays out more money as the unemployment rate rises.

Which of the following measures is NOT an example of discretionary fiscal policy? A) The unemployment compensation program pays out more money as the unemployment rate rises. B) Tax rates are increased in the hope of slowing down the rate of inflation. C) Tax increases are enacted to reduce the government deficit. D) Government spending is increased to reduce the problems caused by a recession.

B) Not knowing the economy's position on the Laffer curve means the effects of lowering tax rates are uncertain.

Which of the following statements is true? A) Tax revenues are maximized when the tax rate is 100%. B) Not knowing the economy's position on the Laffer curve means the effects of lowering tax rates are uncertain. C) Low marginal tax rates have disincentive effects on work effort. D) High marginal tax rates increase incentives to work.

A) A rise in the country's stock market increases the value of stock held by people.

Which of the following would cause an increase in a country's aggregate demand? A) A rise in the country's stock market increases the value of stock held by people. B) The country's inflation rate is lower than the inflation rates abroad among its trading partners. C) The government raises taxes in the country. D) The nominal interest rate falls as the country's price level falls.

D) Taxes are decreased in the country while expectations of job security rise in the workforce.

Which set of events would lead to an increase in a country's aggregate demand? A) The country's CPI falls while its currency appreciates. B) The country's inflation rate is lower than inflation rates abroad while debt levels in the country rise. C) Interest rates fall in the country while there is a serious recession in the country's main trading partner. D) Taxes are decreased in the country while expectations of job security rise in the workforce.

C) The money you contribute to FICA is yours, to be given back to you when you retire.

Which statement is NOT true? A) In 2013, the payroll tax was 12.4% of wage earnings up to a maximum of $113,700. B) If you retire at age 67, you will get larger monthly Social Security checks than if you retire before the age of 67. C) The money you contribute to FICA is yours, to be given back to you when you retire. D) Your Social Security benefits are determined by a formula based strictly on your lifetime contributions.

A) falls to $875.

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price: A) falls to $875. B) falls to $800. C) rises to $1,125. D) falls to $700.

C) The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which of the following statements is true? A) The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes. B) The movement from point e to point a is due to workers and suppliers adjusting their expectations to lower price levels. C) The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels. D) The movement from point e to point a is due to decreased consumer spending brought about by increased government spending and/or lower taxes.

C) Isabelle

(Table: IRA Contributions) The table shows the marginal income tax rate for four individuals and the annual contribution they make to their respective IRAs. Which woman has the smallest decrease in after-tax income after making her IRA contribution? A) Mary B) Kathleen C) Isabelle D) Patricia