econ exam 3

On which of the following is there a tax incentive in the United States?(i) health insurance purchased through employers(ii) your mortgage(iii) rental value on owner-occupied housing(iv) contributions toward your retirement account

(i), (ii), (iii), and (iv)

Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output gap is therefore _____%.

-10

You are sitting at your desk in your new job as the Chair of the Federal Reserve Bank of the United States. The interest rate where potential GDP meets real GDP is 2%, the inflation rate is 1%, and the output gap is -1%. What is the appropriate new nominal federal funds rate that you should set for the economy?

1.5%

If potential output is 8,865,368 higher than current output, and the marginal propensity to save is 0.26, and there is no crowding out, then how much government spending is necessary to close the output gap?

2,304,996

Which of the following is a reason NOT to worry about government debt?

Future generations can help repay the debt.

Which of the following schools of thought is based on the monetary theory of money, and proposes that activist monetary policy is actively harmful if it is used to affect the business cycle?

Monetarism

How is monetary policy different from fiscal policy?

Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when productivity increases in the economy?

Prices decrease, and GDP increases.

Potential output would NOT be increased by:

a decrease in the aggregate price level.

An excise tax is a tax on:

a specific product.

Macroeconomic equilibrium occurs where:

aggregate demand intersects with aggregate supply.

If the economy is at potential output and consumption spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is:

an increase in government spending.

Monetary policy affects GDP and the price level by:

changing aggregate demand.

The short-run aggregate supply curve will shift to the left if:

commodity prices rise.

If the Turkish Central Bank forecasts a negative output gap, you can reasonably expect _____ on the horizon.

deflation

Suppose that an economy is in a recession. You would expect to see real GDP:

fall below potential GDP.

The Federal Reserve will lose money as a lender of last resort if:

financial institutions fail to pay back their loans.

Government spending adds directly to GDP through _____ and indirectly through _____.

government purchases; transfer payments

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 3%, then the Fed will want the new real interest rate to be:

higher than the neutral interest rate.

The long run in macroeconomic analysis is a period:

in which nominal wages and other prices are flexible.

If the interest rate on CDs rises from 5% to 10%, the opportunity cost of holding money will _____ and the quantity demanded of money will _____.

increase; decrease

The purpose of "Fedspeak" was to:

minimize market reactions from Federal Reserve statements.

A fall in prices leads to a:

movement down and to the right along the same aggregate demand curve.

The long-run level of output is known as _____ output.

potential

The Federal Reserve was created to:

provide stability in the banking sector and the economy.

Forward guidance occurs when the Federal Reserve:

provides information about the future course of monetary policy in order to influence expectations about future interest rates.

Based on Okun's rule of thumb, if you forecast that the output gap will decline from 0% to -3%, the unemployment rate will:

rise by 1.5%.

Mandatory spending is spending that:

supports programs that do not get determined annually but instead are set in law.

The marginal tax rate is the:

tax rate you pay if you earn another dollar.

The members of the Federal Open Market Committee (FOMC) who can actually vote on policy decisions are:

the Fed governors, the New York Fed president, and a rotating group of four other district bank presidents.

The size of the multiplier increases as the size of the marginal propensity to consume increases.

true

As you move to the left of the Short-run Phillips curve that shows the relationship between inflation and unemployment,

unemployment decreases and inflation increases

An example of a lagging indicator is:

unemployment insurance claims.

The long-run supply curve illustrates how the aggregate output supplied is _____ the aggregate price level.

unrelated to

Fiscal policy ________, while monetary policy ____________.

uses taxes and government spending to affect the economy; uses interest rates to affect the economy

In a recessionary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today.

lower; induce

If an economy has a negative output gap of 2%, this means:

GDP is 2% below potential GDP.

In the short run, a positive demand shock _____ aggregate output and _____ the aggregate price level.

increases; increases

If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is:

less than 4.

In late 2008, the Federal Reserve began purchasing billions of dollars' worth of mortgage-backed securities from banks. This was evidence of:

quantitative easing.

The lower bound for the federal funds rate is set by the:

repurchase agreements and interest on excess reserves.

Ceteris paribus, a decrease in imports leads to a:

right shift of the aggregate demand curve.

Expansionary monetary policy causes a:

right shift of the aggregate demand curve.

A change in _____ does NOT shift the money demand curve.

the interest rate

You are the governor of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 2.75%, and the output gap is 1.25%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

well whats the answer???

The wealth effect is the:

inverse relationship between prices and consumption spending due to changes in real wealth.

The Federal Reserve's lender-of-last-resort function means that it:

lends to financial institutions when they are having trouble getting loans.

Potential output is the level of real GDP that:

the economy would produce if all prices, including nominal wages, were fully flexible.

Suppose a high-income person, a middle-income person, and a low-income person all receive an additional $7,000 in health insurance instead of a $7,000 raise. Who gets the largest tax benefit?

the high-income person

The quantity demanded of money is negatively related to _____, and the demand for money is positively related to _____.

the interest rate; real GDP

When the Federal Reserve purchases more long-term bonds, this:

lowers long-term bond interest rates.

What is the floor framework that the Federal Reserve uses to influence the federal funds rate?

The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go

In the long run, the aggregate supply curve is vertical because the:

quantity of output returns to potential GDP as market prices adjust and resource markets return to equilibrium.

In the AD-AS framework, price and quantity are represented by _____, respectively.

the GDP deflator and the real GDP

The government's debt is:

the accumulation of all the deficits.