macro exam

During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to

reassure financial markets and promote financial stability.

If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run.

reduce; lower

Which of the following functions of money would be violated if inflation were high?

store of value

Suppose the federal budget deficit for the year was $100 billion and the economy was in a recession. If the economy had been at potential GDP, it is estimated that tax revenues would have been $60 billion higher and government spending on transfer payments $50 billion lower. Using these estimates, the cyclically adjusted budget

surplus was $10 billion.

The Federal Reserve can directly affect its monetary policy ________, which then affect its monetary policy ________.

targets; goals

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment.

taxes; expenditures

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then

the Fed's expansionary policy may result in too large of an increase in GDP.

The velocity of money is defined as

the average number of times each dollar is used to purchase goods and services.

When the Fed increases the money supply

the interest rate falls and this stimulates investment spending.

The major shortcoming of a barter economy is

the requirement of a double coincidence of wants.

Refer to Figure 16-11. In the graph above, the shift from AD1 to AD2 represents the total change in aggregate demand. If government purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion.

would be greater than

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

$10,000.

Scenario 14-2Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's required reserves increase by

$2,000.

Table 14-3 Assets; Reserves +$7,000 Loans +$46,000 Liabilities; Deposits $50,000 Net Worth +$3,000 Refer to Table 14-3. Consider the above simplified balance sheet for a bank. If the required reserve ratio is 10 percent, the bank can make an aother loan of

$2,000.

Table 14-1 Assets Reserves +$4,000 Liabilities Deposits +$4,000 Refer to Table 14-1. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of

$3,600.

Scenario 14-2Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.Refer to Scenario 14-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

$50,000.

Table 14-2 Assets Reserves +$8,000 Liabilities Deposits + $8,000 Refer to Table 14-2. Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank can make a maximum loan of

$7,200.

Scenario 14-2Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

$8,000.

Scenario 14-2Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's excess reserves increase by

$8,000.

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be

11 percent.

If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is

5.

When housing prices ________ as they did beginning in 2006 following the housing market bubble, most banks and other lenders tightened the requirement for borrowers, making it ________ for potential home buyers to obtain mortgages.

fell; harder

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

higher; higher

You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt. Using the M1 measure of money, you have

money = $300, annual income = $6,000, and wealth = $4,300.

In 2008, the Treasury and Federal Reserve took several actions in response to the deepening financial crisis. One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for

mortgage-backed securities.

The Federal Reserve System's four monetary policy goals are

price stability, high employment, economic growth, and stability of financial markets and institutions.

Crowding out refers to a decline in ________ as a result of an increase in ________.

private expenditures; government purchases

President Trump's proposed increase in spending on infrastructure projects is an example of discretionary fiscal policy aimed at increasing

real GDP and employment.

The largest proportion of M1 is made up of

checking account deposits.

Which of the following is not counted in M1?

credit card balances

If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________.

decrease; not change

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

By making exchange ________, money allows for ________ and higher ________.

easier; specialization; productivity

Fiscal policy refers to changes in

federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

Refer to Figure 15-7. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

A to B.

Refer to Figure 16-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

A to B.

Refer to Figure 15-7. Suppose the economy is in a recession and no policy is pursued. Using the basic AD-AS model in the figure above, this situation would be depicted as a movement from

A to E.

Refer to Figure 16-1. Suppose the economy is in short-run equilibrium below potential GDP and no fiscal or monetary policy is pursued. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

A to E.

Refer to Figure 16-1. Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising. If contractionary policy is used to move the economy back to long run equilibrium, this would be depicted as a movement from ________ using the basic AD-AS model in the figure above.

C to B

Refer to Figure 15-7. Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy. Using the basic AD-AS model in the figure above, this situation would be depicted as a movement from

C to B.

Refer to Figure 15-7. Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the basic AD-AS model in the figure above, the correct Fed policy for this situation would be depicted as a movement from

C to B.

Refer to Figure 16-1. Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

C to D.

Fiscal policy is determined by

Congress and the president.

Which of the following is considered expansionary fiscal policy?

Congress decreases the income tax rate.

Monetary policy is conducted by the U.S. Treasury Department.

False

Monetary policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.

Expansionary monetary policy refers to the ________ to increase real GDP.

Federal Reserve's increasing the money supply and decreasing interest rates

Government transfer payments include which of the following?

Social Security and Medicare programs

Which of the following would be classified as fiscal policy?

The federal government cuts taxes to stimulate the economy.

If the federal budget has an actual budget surplus of $75 billion, but a cyclically adjusted budget surplus of $50 billion, then the economy must be above potential real GDP.

True

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.

True

To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the

budget deficit or surplus as a percentage of GDP.

The aggregate demand curve will shift to the right ________ the initial increase in government purchases.

by more than

Suppose the government spending multiplier is 2. The federal government cuts spending by $40 billion. What is the change in GDP if the price level is not held constant?

a decrease of less than $80 billion

An increase in the interest rate causes

a movement up along the money demand curve.

The statement, "My iPhone is worth $700" represents money's function as

a unit of account.

Refer to Figure 16-4. In the graph above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by Congress and the president?

an increase in the marginal income tax rate

Refer to Figure 15-2. In the figure above, the movement from point A to point B in the money market would be caused by

an open market sale of Treasury securities by the Federal Reserve

In economics, money is defined as

any asset people generally accept in exchange for goods and services.

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

increase; fall; rises

If you liquidate $3,000 of your money market mutual fund and transfer the funds to your checking account, then initially, M1 will ________ and M2 will ________.

increase; not change

A decrease in individual income taxes ________ disposable income, which ________ consumption spending.

increases; increases

Expansionary fiscal policy involves

increasing government purchases or decreasing taxes.

The largest source of federal government revenue in 2016 was

individual income taxes.

Which of the following information about fiat money is false? Fiat money

is backed by gold.

Refer to Figure 15-6. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

lower interest rates.

The Federal Reserve's two main ________ are the money supply and the interest rate.

monetary policy targets

Which of the following is the most liquid asset?

money