Macro Exam 2, Ch 9-13, Review Questions

Which of the following will NOT shift the aggregate supply curve to the left? An increase in the minimum wage, a decrease in corporate taxes, an increase in the price of crude oil, or an increase in the legislated amount of paid vacation?

a decrease in corporate taxes

When economists warn about the crowding-out effect, they are referring to:

when government borrowing reduces private investment.

Price stickiness refers to:

when prices are slow to adjust to economic shocks

If AD shifts right as the economy booms, and then SRAS shifts left, what happens to inflation?

It increases.

Based on the graph, if households decide to save a larger portion of their income because they fear job loss due to a recession, the loanable funds supply curve will shift from _____ to _____, and the new equilibrium will be at point _____, holding demand constant at D0.

S0; S1; b

The fractional reserve banking system:

Makes possible the money creation process, helps to prevent bank runs, and requires banks to hold a portion of their demand deposits in reserves.

Liquidity refers to:

how quickly, easily, and reliably an asset can be converted into a medium of exchange.

Saving is:

income that is not spent on consumption goods.

A bond's price and yield:

move in opposite directions.

If an economy is in a recession, what would expansionary fiscal policy do?

shift AD to the right

The long-run aggregate supply curve is vertical because:

the economy will gravitate to the position of full employment when all variables are flexible.

A type of money made from a substance that is also valuable is called:

commodity money.

Which of these is NOT part of the financial system?

digital market

In the Keynesian model, the price level is _____; in the aggregate demand and supply model, the price level is _____.

fixed; flexible

According to the trade-off between risk and return, which asset would likely have the highest average return on investment over a 20-year period?

shares of stock in social media companies

Social Security and Medicare are considered _____ liabilities and are expected to _____ over the next generation.

unfunded; rise

What are the primary functions of money?

unit of account, medium of exchange, store of value

One reason the amount of real output demanded declines when the aggregate price level rises is the resulting reduction in household wealth, called the:

wealth effect.

If a country increases the amount of goods it imports but its exports remain unchanged, what happens to AD?

AD shifts left.

If business expectations become less favorable, what will likely happen to the AD curve?

AD shifts left.

If the government raises taxes, what will this do to the AD curve?

AD shifts left.

Evidence has suggested that borrowing is _____ than taxation by politicians to finance fiscal policy spending, which has led to a(n) _____ of the federal government over the last few decades.

more favored; expansion

If the economy is above long-run equilibrium output, what will happen in the long run if SRAS adjusts?

Prices rise and output decreases.

In an AD/AS model, if the economy is below its long-run output, what will happen in the long run if the markets are left alone?

SRAS will shift right.

What are the two common measures of the money supply in use today?

M1 and M2

Which of the following is NOT true about the Fed's Board of Governors? There are seven members of the Board of GovernorsMembers of the Board of Governors serve one 14-year term. The Board of Governors is located in Washington, D.C. Members of the Board of Governors are elected by voters in the region they serve.

Members of the Board of Governors are elected by voters in the region they serve.

Which statement is NOT true about Social Security?

Payroll taxes for Social Security are a percentage of income, with no income limit.

Which of these is NOT one of the criteria for a commodity to serve as money?

The commodity must be issued as currency or coin.

Which of the following is a critical dilemma when implementing fiscal policy in reference to timing lags?

The economy may already be in a recovery before fiscal policy is enacted.

If the government offers an incentive for individuals to save, the supply for loanable funds will shift to the _____ and the real interest rate will _____.

right; decrease

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Economic growth is shown as a:

shift to the right of the long-run aggregate supply curve.

What function of money is BEST served by money that can last for hundreds of years?

store of value

If the U.S. aggregate price level rises:

the purchasing power of wealth will decrease.

Aggregate supply is:

the real GDP that firms will produce at varying price levels.

The "wealth effect" refers to the fact that when aggregate price levels rise:

the real value of savings accounts, bonds, and cash declines.

Automatic stabilizers have _____ effects during times of economic prosperity and _____ effects during times of economic downturn.

contractionary; expansionary

The fixed rate of interest on the face value of a bond is known as the:

coupon rate.

Which of these is a liability for a bank?

customers' checking account balances

What is the one major category that separates national debt from public debt?

debt held by other government agencies

A temporary rise in the price of agricultural crops due to a drought is likely to cause a(n):

decrease in the short-run aggregate supply.

Which of these is NOT a leakage in money creation? Keeping cash under the mattress, foreigners holding U.S. dollars to diversify risk, banks holding more reserves than required, or depositing a large jar of coins at the bank?

depositing a large jar of coins at the bank

Institutions that serve as the bridge between savers and borrowers are known as:

financial intermediaries.

If a government collects $550 billion in taxes and spends $700 billion, it would have a:

deficit of $150 billion.

When investors wish to increase their investment activities by using the market for loanable funds:

demand shifts right.

Fiat money:

does not necessarily have any intrinsic value but has been declared by a government to be money.

The aggregate demand curve slopes _____ and has _____ on the vertical axis.

downward; the price level

Which retirement plan does NOT involve individuals managing their accounts by choosing the preferred risk-level of invested assets?

employer-provided pension plans

Which of the following events causes a decrease in aggregate demand?

increase in taxes

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _____ in the _____ U.S.-made products.

increase; aggregate demand for

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in:

increased inflation.

A falling aggregate price level _____ demand for a country's exports and therefore _____ output demanded.

increases; increases

The most important measure in determining whether a country's national debt is a significant problem is:

interest paid on the national debt as a portion of GDP.

The price of a bond is equal to:

interest payment divided by yield.

The demand curve for loanable funds represents _____ and is _____.

investors; downward sloping

If an economy is on the vertical portion of the aggregate supply curve, then it:

is at full employment.

The main feature of fractional reserve banking is that banks:

keep a portion of deposits in reserves but lend out the rest.

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.

left; decrease

Increased taxes will shift the aggregate demand curve to the _____ and _____ output demanded

left; decrease

Which of the following curves is vertical?

long-run aggregate supply

In economics, investment refers to the:

purchase of new capital goods.

The aggregate demand curve displays:

real GDP demanded at various price levels.

Financial institutions:

reduce information costs, reduce transaction costs, and diversify assets.

The supply curve for loanable funds represents _____ and is _____.

savers; upward sloping

Which of the following is a form of U.S. public debt?

savings bonds

In the market for loanable funds, what can cause a rise in interest rates?

supply shifting left and demand shifting right

A decrease in regulation would cause aggregate:

supply to shift to the right.

There are _____ Regional Federal Reserve Banks; the only Regional Bank president who is a permanent member of the Federal Open Market Committee is based in _____.

12; New York

If the money multiplier is 4, what is the reserve requirement?

25%

The U.S. General Accounting Office (GAO) has concluded that _____ would help the introduction of a dollar coin be successful.

removing the dollar bill from circulation

Which of these has the highest liquidity?

cash

Which are the determinants of short-run aggregate supply?

changes in input prices, taxes, and business and inflationary expectations

What is likely to happen if the government runs a budget surplus?

Additional loanable funds are provided to the market, leading to lower interest rates.

Which of the following would NOT cause a shift in the short-run aggregate supply curve? An increase in resource prices, a decrease in the expected rate of inflation, a major technological advance, or a decrease in real interest rates?

Answer is a decrease in real interest rates

Which of the following would NOT shift the AD curve? The economy improves and people start spending more, interest rates rise, which reduces investment spending, an increase in market power occurs in the airline industry, or the federal budget is reduced to tackle the deficit problem?

Answer is an increase in market power occurs in the airline industry

Which of the following factors would most likely shift the SRAS curve to the right? An increase in industrial regulations to improve worker safety, an increase in the use of truck panels and tails to improve fuel efficiency, the federal government's ending its subsidy program on hybrid car production, or improved consumer expectations in the economy?

Answer is an increase in the use of truck panels and tails to improve fuel efficiency

All of the following programs are considered mandatory spending EXCEPT: Social Security, Medicare, national defense, or interest on national debt

Answer is national defense.

How is money created "out of thin air" by banks?

Banks loan out money that is then redeposited into other banks, creating a cycle.

T or F: Savings account deposits are more liquid than currency.

False

Which of the following would most likely cause aggregate demand to decrease?

Income taxes rise to reduce the deficit.

In a depressed economy with a MPC of 0.75, what effect will a $100 increase in government spending have on equilibrium GDP?

It will raise it by $400

José is putting money for college in a savings account. The bank makes the money available to business borrowers. In essence:

José is supplying loanable funds for business investment.

Which of the following acts created the central bank of the United States as we know it today?

The Federal Reserve Act of 1913

The long-run aggregate supply curve is most consistent with the _____ school of economic thought.

classical

Which of these is NOT a primary role of financial intermediaries in the market for funds?

collecting taxes on financial transactions

An economist notices that M1 is rapidly rising. One conclusion she might draw is that:

consumers are preparing to make more purchases.

In macroeconomics, the long run is:

a period long enough that participants in the economy will have enough time to gain all relevant information and enough time to act correctly on that information.

Buying stock in a company is:

a transfer of ownership rights.

Reducing government spending, reducing transfer payments, or raising taxes describes which policy?

contractionary fiscal policy

If the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output?

aggregate price level decreases; aggregate output increases

The real GDP that firms will produce at varying price levels is:

aggregate supply.

A shift of the long-run aggregate supply curve to the right suggests which of the following?

an increase in productivity

Which of these will cause the supply of loanable funds curve to shift leftward?

an increase in the government deficit

In financial markets, which group best represents the demand side of the market?

borrowers

Financial intermediaries match:

borrowers with savers.

Cash is counted in the money supply as a part of:

both M1 and M2.

In the market for loanable funds, savers are shown:

on an upward-sloping supply curve.

Which source of short-term borrowing charges the highest average interest rates on unpaid balances?

ordinary credit cards

Which of the following is NOT considered saving? Making a deposit in a savings account at the bank, buying a share of stock in a computer company, buying a corporate bond, or paying tuition for a college education?

paying tuition for a college education

In the short run, the aggregate supply curve is _____ because input prices are _____.

positively sloped; not completely flexible