Econ exam #3 multiple choice
33. If the required reserve ratio is 25 percent, the money multiplier is A) 4. B) 16. C) 20. D) 25.
A, 4
2. Which of the following is a tool that can be used by the Federal Reserve to change the money supply?: I. open market operations II.lending to banks and other financial institutions III.interest on reserves A) I, II, and III B) I only C) II only D) I and III only
A, I, II, and III. The fed can use OMO, lending to banks and other financial institutions, and interest on reserves to change the money supply
60. The tool the Federal Reserve uses most frequently to influence the money supply is A) open market operations B) discount rate lending and term auction facility C) required reserve ration and payment of interest on reserves D) federal funds lending
A, OMO
28. The best type of negative shock for fiscal policy to respond to is a negative shock to A) aggregate demand. B) short-run aggregate supply. C) the Solow growth curve. D) inflation.
A, aggregate demand
47. In the New Keynesian model, suppose the Fed reacts to an economic shock and quickly restores the economy to the Solow growth rate. The shock most likely A) an aggregate demand shock. B) a real shock. C) a productivity shock. D) all the answers are correct.
A, an AD shock
31. In response to a negative supply shock, a temporary increase in government spending will likely result in A) an increase in inflation and an increase in output growth. B) a decrease in inflation and an increase in output growth. C) a decrease in inflation and output growth going back to its potential level. D) an increase in inflation only. E) None of the above.
A, an increase in inflation and an increase in output growth
93. In a progressive tax system, if a person moves from one income bracket to a higher income bracket: A) both the marginal tax rate and average tax rate will be higher. B)both the marginal tax rate and average tax rate will be lower. C)the marginal tax rate will be lower and the average tax rate will be higher. D)the marginal tax rate will be higher and the average tax rate will be lower.
A, both the marginal tax rate and average tax rate will be higher
8. If the Fed wants to increase the money supply, it will ______ Treasury securities. A) buy B) sell C) hold D) issue
A, buy
74. Which asset would you classify as being most liquid? (a) checkable deposits (b) small-time deposits (c) a home (d) gold coins
A, checkable deposits
109. Government spending is a more effective policy tool when: A) consumers are pessimistic and not spending. B) the government raises taxes to finance spending. C) the economy is above the LRAS curve. D) interest rates in the economy are rising simultaneously.
A, consumers are pessimistic and not spending
108. What are the four major limits to fiscal policy? A) crowding out, a drop in the bucket, a matter of timing, and real shocks B) poor information, the multiplier effect, the bandwagon effect, and election timing C) sticky wages, Ricardian equivalence, recognition lag, and crowding out D) aggregate demand deficiency, unemployed resources, long-run expenses, and
A, crowding out, a drop in the bucket, a matter of time, and real shocks
(Figure: Monetary Policy) Assume that the economy is initially at Point Y. In the best case scenario, the Fed will A) increase money supply to take the economy to Point X. B) decrease money supply to take the economy to Point W. C) increase money supply to take the economy to Point W. D) decrease money supply to take the economy to Point X.
A, increase money supply to take the economy to Point X
61. All else held equal, when the Federal Reserve makes an open market purchase, the money supply: A) increases. B) decreases. C) remains constant. D) becomes difficult to predict.
A, increases
98. Which of the following sources of tax revenues make up more than 90% of all government revenue? A) individual income tax, corporate income tax, and Social Security and Medicare taxes B) corporate income tax, Social Security and Medicare taxes, and estate taxes C) corporate income tax, Social Security and Medicare taxes, and excise taxes D) individual income tax, corporate income tax, and excise taxes
A, individual income tax, corporate income tax, and Social Security and Medicare taxes
92. What is the main source of funds for the U.S. federal government? (a) Individual income taxes. (b) Corporate income taxes (c) Social Security and Medicare taxes (d) Borrowing.
A, individual income taxes
13. The problem with the 2008 stimulus package that gave people tax rebates was that A) most people saved their tax rebates B) most people spent their tax rebates C) the rebates were too large given the economic shock D) None of the answers are correct
A, most people saved their tax rebates
96. Debt held outside the U.S. government is called the: A) national debt held by the public. B) total U.S. national debt. C) debt-to-GDP ratio. D) debt to foreign investor holdings.
A, national debt held by the public
24. Social Security is run on a ______ basis. A) pay-as-you-go B) contract C) trust fund D) prepaid
A, pay-as-you-go
64. (Figure: Negative Supply Shock) In the New Keynesian model, where prices are slow to adjust, assume this economy initially begins at point A and suppose that a negative supply shock takes the economy to point Y. If the Fed reacts by increasing spending growth by 3%, this would take the economy to: A) point X. B) point V. C) point B. D) point A.
A, point X
43. The group that formulates and implements monetary policy is _____________. A) the Federal Open Market Committee (FOMC). B) the Board of Governors. C) the Federal Reserve Operating Board. D) the United States Treasury.
A, the Federal Open Market Committee (FOMC)
85. The deficit is the while the debt is the (a) the annual difference between federal spending and revenues; accumulation of all deficits and surpluses. (b) the annual difference between federal spending and revenues; accumulation of all debts and surpluses. (c) accumulation of all deficits and surpluses; the annual difference between federal spending and revenues. (d) accumulation of all debts and surpluses; the annual difference between federal spending and revenues.
A, the annual difference between federal spending and revenues; accumulation of all deficits and surpluses
54. The Federal Reserve can influence the economy by shifting: A) the dynamic AD curve. B) the SRAS curve. C) the Solow growth curve. D) All of the answers are correct.
A, the dynamic AD curve
3. The Federal Reserve has direct control over A) the monetary base. B) M1. C) M2. D) checkable deposits.
A, the monetary base
71. Which would result from open market purchases made by the Fed totaling $50,000? (a) The money supply would increase by more than $50,000. (b) Interest rates would rise. (c) The money multiplier would increase. (d) Bank reserves would decrease.
A, the money supply would increase by more than $50,000
21. The marginal tax rate is A) the tax rate paid on an additional dollar of income. B) higher on people with higher incomes. C) the total tax payment divided by total income. D) a separate income tax code begun in 1969 to prevent the rich from paying income taxes.
A, the tax rate paid on an additional dollar of income
94. Nearly 70% of all U.S. federal income taxes are paid by: A)the top 20% of income earners. B)the bottom 20% of income earners. C)the middle class: the twentieth percentile to the eightieth percentile of income earners. D)the top 1% of income earners.
A, the top 20% of income earners
76. High interest rates send a signal to market participants that credit is: (a) tight and it is good idea to lend money. (b) tight and it is good idea to borrow money. (c) easy and it is good idea to lend money. (d) easy and it is good idea to borrow money.
A, tight and it is a good idea to lend money
17. When facing a real shock, a central bank will encounter a dilemma that forces it to choose between A) too low a rate of growth or too high a rate of inflation. B) too high a rate of growth or too low a rate of inflation. C) too low a rate of growth or too low a rate of inflation. D) too high a rate of growth or too high a rate of inflation.
A, too low a rate of growth or too high a rate of inflation
70. Bank A has $100 million in deposits, $15 million in required reserves, and $85 million in loans.Bank A's reserve ratio is: (a) 10%. (b) 15%. (c) 20%. (d) 75%.
B, 15%
11. Quantitative easing occurs when the A) Fed sells long-term securities. B) Fed buys long-term securities. C) government lowers income and other taxes. D) government raises income and other taxes.
B, Fed buys long-term securities
78. A potential problem with expansionary monetary policy is that banks can: (a) be loaned up prior to open-market operations. (b) be unwilling to lend. (c) decide that a recession is best for the economy. (d) choose not to hold any reserves.
B, be unwilling to lend
57. The monetary base (MB) refers to: A) currency. B) currency plus (total) reserves. C) currency plus checkable deposits. D) currency, savings deposits, money market mutual funds, and small time deposits
B, currency plus (total) reserves
80. How can the Fed offset a positive shock to aggregate demand? (a) Increase the growth rate of the money supply. (b) Decrease the growth rate of the money supply. (c) Increase the growth rate of government spending. (d) Decrease the growth rate of government spending.
B, decrease the growth rate of the money supply
95. Suppose you are a married person with one child but your whole family earns less than $20,000 a year. Which of the following will supplement your income? A) Social Security B) Earned Income Tax Credit C) Federal Insurance Contribution Act D) alternative minimum tax
B, earned income tax credit
75. Economist were concerned that bailing out financial institutions would create a moral hazard problem because (a) the failure of one financial institution could bring down other institutions as well. (b) financial institutions would take on too much risk in the future because they knew they would be bailed out again if they failed. (c) financial institutions would become insolvent and never pay back their loans. (d) the financial institutions were too large.
B, financial institutions would take on too much risk in the future because they knew they would be bailed out again if they failed
30. The multiplier concept is important because it shows A) why fiscal policy is always effective. B) how small changes in government spending may have large impacts on overall output. C) how changes in taxes are multiplied into larger government revenues. D) why decreases in the tax rate may actually increase tax revenues overall.
B, how small changes in government spending may have large impacts on overall output
48. Suppose following the events at last week's Boston Marathon people decide to hold more currency. In particular, suppose individuals decide to hold more cash (and less checkable deposits) and banks decide to hold more excess reserves. In order to "offset" the economic impact, we might expect the Federal Reserve to _________________. A) require banks to charge lower interest rates on loans. B) increase the monetary base. C) increase the public's holdings of money market mutual funds. D) conduct an open market sale.
B, increase the monetary base
12. Shortly after September 11, 2011, the Federal Reserve A) decreased its lending to banks. B) increased its lending to banks. C) decreased its lending to individuals. D) increased its lending to individuals.
B, increased its lending to banks
38. Before the turn of the century, there was a concern about how computers would function in the next "century". In response to the heightened uncertainty surrounding Y2K, the Federal Reserve A) decreased its lending to banks. B) increased its lending to banks. C) decreased its lending to individuals. D) increased its lending to individuals.
B, increased its lending to banks
62. If businesses react to a pessimistic outlook and decrease spending, the Fed can counteract this by: A) decreasing money supply to spur the economy out of the recession. B) increasing money supply, which may lower real interest rates and encourage borrowing. C) increasing government expenditures to spur the economy out of the recession. D) decreasing corporate taxes to encourage firms to increase their spending.
B, increasing money supply, which may lower real interest rates and encourage borrowing
81. Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising: (a) unemployment. (b) inflation. (c) output growth. (d) Solow growth.
B, inflation
10. When the Fed lowers the federal funds rate, A) both interest rates and the money supply increase. B) interest rates decrease but the money supply increases. C) interest rates increase but the money supply decreases. D) both interest rates and the money supply decrease.
B, interest rates decrease but the money supply increases
73. Suppose that people hold on to some currency and banks like to keep excess reserves. If banks decide to increase their holding of excess reserves for the winter holiday shopping season what would happen to the money multiplier? (a) It would increase, so the Fed would decrease the growth of the monetary base. (b) It would decrease. (c) Nothing because the Fed sets the money multiplier. (d) It would increase, so the Fed would increase the growth of the monetary base.
B, it would decrease
77. Which statement is TRUE regarding the effects of monetary policy when a real shock occurs? (a) Monetary policy can always be used to simultaneously achieve a high real growth rate and lower the inflation rate. (b) Monetary policy cannot simultaneously achieve a high real growth rate and lower the inflation rate. (c) Monetary policy can be used only to change the real growth rate, but not the inflation rate. (d) Monetary policy can be used only to change the inflation rate, but not the real growth rate.
B, monetary policy cannot simultaneously achieve a high real growth rate and lower the inflation rate
84. What type of tax system does the United States have? (a) unfair (b) progressive (c) regressive (d) flat
B, progressive
45. When the Fed wants to increase interest rates, it: A) instructs banks across the nation that they must raise their rates. B) sells bonds in the open market. C) buys bonds in the open market. D) adjusts the fractional reserve ratio.
B, sells bonds in the open market
27. An increase in government spending causes A) the aggregate demand curve to shift to the left. B) the aggregate demand curve to shift to the right. C) an upward movement along the aggregate demand curve. D) a downward movement along the aggregate demand curve.
B, the AD curve shift to the right
19. The period of time from the early 1980s through the 2006 was a period when business cycle fluctuations were less extreme. During this time period, the Federal Reserve targeted the interest rate and, for the most part, fiscal policy did not attempt to offset economic shocks. This period is often referred to as A) the Great Recession. B) the Great Moderation. C) the Contemplation Moderation. D) the Great Contemplation. E) the Era of Recession Mitigation.
B, the Great Moderation
6. Open market operations refer to A) the buying and selling of stocks in the stock market. B) the buying and selling of government bonds by the Fed. C) decisions by the Fed to raise or lower interest rates. D) decisions by the Fed to increase or decrease the money multiplier.
B, the buying and selling of government bonds by the Fed
51. Other things being equal, a decrease in government spending growth causes: A) the dynamic AD curve to shift to the right. B) the dynamic AD curve to shift to the left. C) the Solow growth curve to shift to the right. D) the Solow growth curve to shift to the left.
B, the dynamic AD curve to shift to the left
9. The federal funds rate is the A) interest rate banks pay when they borrow directly from the Fed. B) overnight lending rate from one major bank to another. C) interest rate on short-term Treasury securities. D) ratio of reserves to deposits.
B, the overnight lending rate from one major bank to another
4. If the average reserve ratio in the banking system is 20 percent and the Fed increases bank reserves by $100,000, what will be the total potential increase in the money supply? A) $100,000 B ) $120,000 C) $500,000 D) $2 million
C, $500,000
69. The reason why some people are concerned about higher inflation in the future in the United States is because I. the increased growth of the monetary base in the United States II. the fear that velocity will fall more rapidly in the future III. the decline in the number of working age workers IV. the concern that the Federal Reserve may have to print money to pay the debt A) I and II are correct B) I and III are correct C) I and IV are correct D) II and III are correct E) II and IV are correct F) all are correct
C, I and IV are correct- the increased growth of the monetary base in the united states and the concern that the Federal Reserve may have to print money to pay the debt
59. The Federal Reserve's major tools to control the money supply are: I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending. A) I and II only B) III and IV only C) I, II, and III only D) I, II, III, and IV
C, I, II, and III only- OMO, discount rate lending and the term auction facility, and required reserve ratio and payment of interest on reserves
104. People holding more cash because of a decrease in consumer confidence would cause: A) a decrease in the growth rate of output and an increase in the inflation rate. B) an increase in both the growth rate of output and inflation. C) a decrease in both the growth rate of output and inflation. D) an increase in the growth rate of output and a decrease in the inflation rate.
C, a decrease in both the growth rate of output and inflation
107. Assume the government cancels a large infrastructure program, causing construction firms in the area to earn less and lay off workers. Consequently, businesses in the area suffer from a decrease in sales. This story illustrates: A) the crowding out effect. B) an increase in aggregate demand. C) a reverse multiplier effect. D) a negative technology shock.
C, a reverse multiplier effect
14. If the Federal Reserve wished to avoid short-run increases in the unemployment rate, the correct response to a negative AD shock would be A) an increase in government spending growth. B) a tax cut. C) an increase in money supply growth. D) a lower goal for inflation.
C, an increase in money supply growth
16. In the short run, if the Federal Reserve responds to a negative real shock with an increase in money supply growth, the inflation rate will increase because of A) the real shock only. B) the increased money supply growth only. C) both the real shock and the increased money supply growth. D) some reason other than the real shock and the increased money supply growth.
C, both the real shock and the increased money supply growth
79. An increase in money growth will cause the inflation rate to increase in: (a) the short run only. (b) the long run only. (c) both the short run and the long run. (d) neither the short run nor the long run.
C, both the short run and the long run
83. Why did Ireland have to reconsider how they calculated their GDP? (a) They made an accounting error which understated their GDP. (b) They were running too large of a trade deficit which made net exports negative. (c) Companies were using corporate inversion to locate there which overstated GDP. (d) They mainly produced intermediate goods so GDP was understated. (e) The legalization of many drugs caused GDP to jump.
C, companies were using corporate inversion to locate there which overstated GDP
5. The monetary base consists of currency A) plus checkable deposits. B) plus checkable and savings deposits. C) plus total reserves held at the Fed. D) with the inclusion of coins.
C, currency plus total reserves held at the Fed
58. M2 includes: A) currency. B) currency plus deposits. C) currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits. D) None of the above
C, currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits
56. Why are debit cards not listed as money? A) Because they perform the same function as checks, and checks are counted as money. B) Debit cards cannot be used for payments at most stores. C) Debit cards draw on checkable deposits, which are already counted as money. D) Not all banks issue debit cards.
C, debit cards draw on checkable deposits, which are already counted as money
91. The two types of Federal spending are: (a) required, and stimulus. (b) military, and legal. (c) discretionary, and mandatory. (d) transfer, and services.
C, discretionary and mandatory
97. The highest debt-to-GDP ratio in U.S. history occurred: A) during the Reagan administration. B) in 2009, after the stimulus package was put into place. C) during WWII. D) during the Great Depression.
C, during WWII
106. A problem that makes fiscal policy less effective is that: A) government spending does not directly affect aggregate demand. B) government spending is a relatively small portion of GDP. C) higher taxes or increased borrowing to fund government spending can reduce aggregate demand. D) fiscal policy must be offset by monetary policy.
C, higher taxes or increased borrowing to fund government spending can reduce AD
87. Mandatory spending is expected to_____ over the next few decades. (a) stay constant (b) decrease as the government spends less (c) increase (d) become smaller than discretionary spending
C, increase
26. If the economy were operating in a recession, the most appropriate fiscal policy would be to A) decrease government spending in order to balance the budget. B) decrease both government spending and taxes. C) increase government spending and cut taxes, thus running a higher budget deficit. D) increase government spending and increase taxes in order to keep the budget balanced.
C, increase government spending and cut taxes, thus running a higher budget deficit
25. Fiscal policy A) is the decrease in private spending that occurs when government increases spending. B) occurs when people see that lower taxes today means higher taxes in the future, so instead of spending their tax cut they save it to pay future taxes. C) is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations. D) is central bank policy on the monetary base, interest rates, and bank reserves that is designed to influence business fluctuations.
C, is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations
72. Holding reserves is costly for banks because: (a) it forces banks to pay for ATMs. (b) it leads to the risk of bank robberies. (c) it leads to fewer profits. (d) the Fed charges banks interest on required reserves.
C, it leads to fewer profits
46. If the objective of the central bank is to maintain price stability and maximum real GDP growth, monetary policy is: A) equally effective in dealing with real shocks and aggregate demand shocks. B) more effective in dealing with real shocks than with aggregate demand shocks. C) less effective in dealing with real shocks than with aggregate demand shocks. D) totally ineffective in dealing with real shocks or aggregate demand shocks.
C, less effective in dealing with real shocks than with AD shocks
42. The Federal Reserve is often said to operate under a dual mandate. The dual mandate refers to A) low taxes and stable interest rates. B) maximum employment and solvency protection. C) maximum employment and price stability. D) price stability and stable interest rates.
C, maximum employment and price stability
39. The dual mandate refers to the Fed's objective of ___________ and ____________. A) low spending, low taxes B) low spending, low inflation C) maximum growth, low inflation D) low taxes, maximum growth E) low inflation, low taxes
C, maximum growth, low inflation
37. Fiscal policy will be less effective at offsetting shocks to A) drops in velocity B) the dynamic aggregate demand C) negative supply side shocks D) increases in consumer confidence
C, negative supply side shocks
49. The money you pay into Social Security goes to: A) an individual account. B) a trust that earns interest to help pay your benefits. C) pay current beneficiaries. D) the investment fund of your choice.
C, pay current beneficiaries
40. Social Security is run on a ______ basis. A) way-to-go B) case-by-case C) pay-as-you-go D) reductive, additive, and reflective E) None of the above
C, pay-as-you-go
7. Which of the following is NOT one of the three major tools the Fed uses to control the money supply? A) discount rate lending and the term auction facility B) open market operations C) printing paper money D) requiring member banks to hold a higher fraction of deposits as reserves
C, printing paper money
52. The tax rebate of 2008 had a relatively small impact because taxpayers primarily used the rebate to: A) purchase their annual Christmas gifts. B) take vacations. C) reduce their debts. D) All of the answers are correct.
C, reduce their debts
35. (Figure: Monetary Policy) Assume that the economy is initially at Point Y. If the Fed takes the appropriate action with monetary policy, but banks are slow to lend, A) the Fed action would be magnified and the economy would move to Point X. B) the Fed action would be nullified and the economy would remain at Point Y. C) the Fed action would be partially effective and the economy would move to PointZ. D) the Solow growth curve would shift to the left.
C, the Fed action would be partially effective and the economy would move to point Z
44. An open market operation occurs when: A) banks loan funds to each other. B) banks increase the reserve ratio. C) the Fed buys or sells government bonds. D) the Fed enforces regulations on the banking industry.
C, the Fed buys or sells government bonds
63. The Fed's job in manipulating monetary policy is made harder by the fact that: A) monetary authorities do not have a good understanding of how monetary policy works. B) monetary policy is usually pulling the economy in the opposite direction from fiscal policy. C) the Fed has to operate in real time and information on recessions usually becomes available with a lag. D) monetary policy is hardly ever effective in influencing business fluctuations.
C, the Fed has to operate in real time and information on recessions usually becomes available with a lag
15. Which of the following describes one of the difficulties that make it hard for the Fed to effectively implement monetary policy? A) The Open Market Committee needs two-thirds approval from the 12 regional banks before conducting monetary interventions. B) All monetary policies before being implemented are subject to approval by Congress. C) The Fed's control of the money supply is incomplete and subject to uncertain lags. D) The effects of monetary policy often offset those of fiscal policy.
C, the Fed's control of the money supply is incomplete and subject to uncertain lags
82. If the FED does nothing to offset a recession (a) the economy will never recover. (b) inflation will increase. (c) the economy will eventually recover. (d) all hope is lost.
C, the economy will eventually recover
101. The most important tax for determining an individual's incentive to work is: A) the average tax rate. B) the last tax rate. C) the marginal tax rate. D) the total tax rate.
C, the marginal tax rate
22. The average tax rate is A) the tax rate paid on an additional dollar of income. B) higher on people with higher incomes. C) the total tax payment divided by total income. D) a separate income tax code begun in 1969 to prevent the rich from paying income taxes.
C, the total tax payment divided by total income
86. Why might marginal tax rates be understated? (a) They do not account for leisure. (b) People do not consider marginal tax rates in their decisions. (c) They do not account for lost government benefits (d) They do not account for tax refunds.
C, they do not account for lost government benefits
41. Suppose the Federal Reserve's objective was to maintain price stability. In the Real Business Cycle Model, where prices are fully flexible, how would the Federal Reserve respond to a positive technology shock? A) They would raise the reserve requirement. B) They would raise the discount rate. C) They would buy bonds. D) Since the Federal can not influence inflation, they would not respond.
C, they would buy bonds
88. Which of the following statements about the Social Security program is incorrect? (a) Women, who generally live longer than men, benefit more from the system. (b) Retiring earlier does not give you greater benefits from social security. (c) Your Social Security withholdings from your paychecks are deposited into an account for you. (d) Social security is at risk of failing in the future.
C, your social security withholdings from your paychecks are deposited into an account for you
110. If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway, how much is added to short-run aggregate demand? A) $300,000 B) $500,000 C) $100,000 D) $200,000
D, $200,000
90. If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the total tax payment for a person earning $25,000 is approximately: (a) $2,000. (b) $2,500. (c) $3,000. (d) $4,500.
D, 4,500
23. U.S. government spending on Social Security, defense, Medicare, and Medicaid makes up almost A) 25 percent of federal government spending. B) 33 percent of federal government spending. C) 50 percent of federal government spending. D) 67 percent of federal government spending
D, 67% of federal government spending
65. The Federal Reserve's dual mandate refers to the Fed's main objectives I. to maintain price stability II. to maintain balanced budgets III. to oversee the Treasury IV. to maintain economic growth that is consistent with full-employment A) I and II are correct B) I and III are correct C) I, II, and III are correct D) I and IV are correct E) III and IV are correct F) II and III are correct
D, I and IV are correct- to maintain price stability and to maintain economic growth that is consistent with full-employment
68. Examples of the Federal Reserve increasing the money supply to offset (potential) shifts in the dynamic aggregate demand schedule include: I. because of fears of Y2K II. after 9/11/2001. III. after the collapse of subprime mortgage market and during the great recession. A) I and II only B) I and III only C) II and III only D) I, II, and III E) None of the above
D, I, II, and III- because of fears after Y2K, after 9/11, and after the collapse of subprime mortgage market and during the great recession
1. The Federal Reserve: I. clears all checks. II. makes monetary policy. III. supervises the banking sector. A) I only B) I and II only C) II and III only D) I, II, and III
D, I, II, and III. The Fed clears all checks, makes monetary policy, and supervises the banking sector
55. The Federal Reserve is the: A) federal government's bank. B) U.S. central bank. C) banker's bank in the U.S. D) All of the answers are correct.
D, all are correct
103. Which of these would help a government fight a recession? A) raising taxes B) paying down the national debt C) cutting spending D) cutting taxes
D, cutting taxes
105. The economist John Maynard Keynes said, "In the long run, we are all _____." A) tired B) sticky C) old D) Dead
D, dead
102. An increase in the capital gains tax will most likely: A) raise the marginal tax rate. B) raise the average tax rate. C) increase investment. D) decrease investment.
D, decrease investment
18. To restore growth and reduce unemployment in the economy, the Federal Reserve would A) decrease the money growth rate, which will lower both the inflation rate and economic growth rate. B) decrease the money growth rate, which will increase both the inflation rate and economic growth rate. C) increase the money growth rate, which will lower both the inflation rate and economic growth rate. D) increase the money growth rate, which will increase both the inflation rate and economic growth rate.
D, increase the money growth rate, which will increase both the inflation rate and economic growth rate
20. Which of the following accounts for the largest source of tax receipts for the U.S. federal government? A) excise tax B) corporate income tax C) social Security tax D) individual income tax
D, individual income tax
99. The tax rate paid on an additional dollar of income is the: A) secondary tax rate. B) higher tax rate. C) reserve tax rate. D) marginal tax rate.
D, marginal tax rate
89. The Social Security system redistributes income from: (a) low-wage workers to high-wage workers. (b) people with longer life expectancies to people with shorter life expectancies. (c) men to women. (d) people with shorter life expectancies to people with longer life expectancies.
D, people with shorter life expectancies to people with longer life expectancies
36. The Fed uses each of the following to control the money supply EXCEPT A) open market operations. B) discount rate lending. C) paying an interest rate on bank reserves held at the Fed. D) prime interest rate lending. E) The Fed uses all of theses
D, prime interest rate lending
32. Which of the following is NOT a function of the Federal Reserve? A) serving as the lender of last resort B) regulating the U.S. financial system C) regulating the U.S. money supply D) providing loans to small businesses
D, providing loans to small businesses
66. During the 1970s, the Fed often reacted to negative oil shocks by increasing the money supply and focusing on: A) increasing long-run growth in the economy. B) reducing inflation. C) increases unemployment. D) raising employment and short-run economic growth. E) None of the answers are correct.
D, raising employment and short-run economic growth
111. The tax rebate of 2008 had a relatively small impact because taxpayers primarily used the rebate to: A) increase their savings. B) take vacations. C) purchase their annual Christmas gifts. D) reduce their debts.
D, reduce their debts
29. Expansionary fiscal policy to stimulate the economy may be less effective when A) the effects of fiscal policy can often be offset by monetary policy. B) government spending is a relatively small portion of GDP. C) government spending does not directly affect aggregate demand. D) taxes or increased borrowing to fund spending reduce aggregate demand.
D, taxes or increased borrowing to fund spending reduce AD
50. Even if the United States experiences no more recessions and the federal government spends nothing extra on any particular program, its expenditures will still rise because: A) unemployment benefits will rise. B) the government has committed to increasing Medicare payments for the next three decades. C) it will receive less foreign aid in the future. D) the population is aging and thus Social Security and Medicare payments will rise.
D, the population is aging and thus social security and Medicare payments will rise
67. Why is monetary policy not fully effective in combating a negative supply shock? A) The Fed has no tools with which to stimulate an economy after the Solow growth curve shifts to the left. B) When countering a negative supply shock, Fed action will cause deflation. C) When countering a negative supply shock, Fed action will raise unemployment. D) When countering a negative supply shock, Fed action will raise inflation.
D, when countering a negative supply shock, Fed action will raise inflation
53. In the New Keynesian model, a fiscal policy that could "offset" a drop in consumer or producer confidence is a: I. An increase in the money supply. II. A reduction in taxes rates or tax rebates III. An increase in government spending. A) I only B) II only C) III only D) I and III only E) II and III only
E, II and III only, a reduction in taxes or tax rebates and an increase in government spending
100. A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, what is that person's marginal tax rate? A) 13.3% B) 15% C) 20% D) 10%
Maybe A, 13.3%
