Macro Final
_____ marginal tax rates and _____ are commonly used to increase aggregate supply.
Lowering; offering investment tax credits
If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?
0.6
The recent global financial instability:
All of the answers are correct. slowed down economic growth. caused severe credit crunches. harmed standards of living.
Which statement about short-run economic growth is NOT true?
It is likely to occur when obstacles preventing resources from being used are put in place.
Which economist promoted public choice theory?
James Buchanan
Which of the following items is NOT public debt?
U.S. dollars is Treasury bonds U.S. savings bonds Treasury notes
Which factor would NOT cause the demand curve for green tea to shift to the right?
a decrease in the price of green tea
A business cycle recovery that doesn't reach its long-term trend can lead to:
a double-dip recession.
The Federal Reserve uses its tools to counteract:
booms and recessions.
In recent years, countries such as China have been _____ U.S. debt as a way to keep their currencies from _____ against the U.S. dollar.
buying; rising
which are the principal resources that can be changed through actions taken by the government?
capital and labor
Measuring changes in a fixed basket of goods to assess changes in price is a _____ method.
cost-of-goods index
The twin goals of monetary policy are:
economic growth with low unemployment and stable prices with moderate long-term interest rates.
When the value of the dollar rises, exports _____ and imports _____.
fall; rise
Prices do NOT help consumers decide:
how much of a product to produce.
The GDP deflator is an index that includes prices of all of the following EXCEPT:
imports. yes investment goods. government goods and services. consumer goods.
Which of the following are examples of automatic stabilizers?
income tax revenues and transfer payments
The measure of society's benefits due to a market transaction is called:
total surplus.
Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:
$0.1 trillion.
If Eighth Street Bank receives a $1,000 deposit, loans out $800, and keeps $200 in reserves, the total assets of Eighth Street Bank increased by:
$1,000
Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus?
$11
Suppose that at the end of 2014, the government holds debt of $150 billion, has collected tax revenue of $50 billion, and has spent $75 billion. The national debt at the beginning of 2015 is:
$175 billion.
The U.S. public debt fell during the _____ and rose during the _____.
1950s; 2010s
_____ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange.
A monetary rule
What are the components of aggregate expenditures?
C + I + G + (X - M)
The demand for gasoline is rising. Which statement describes a possible cause?
Consumers expect prices to rise in the near future.
The main policymaking arm of the Fed is the:
Federal Open Market Committee.
Which of these is a Keynesian view on why monetary policy could be ineffective?
If interest rates are extremely low, there is little incentive to save. In this case, expansionary monetary policy has little impact on investment spending.
Which statement does NOT deal with microeconomics?
In 2009, the unemployment rate in the United States rose to nearly 10%.
Which of the following statements does NOT describe a problem of balancing the budget over the business cycle?
Increasing taxes at the top of the cycle exacerbates inflation.
People who are considered unemployed include:
None of those listed is considered unemployed. those who are doing temporary work. those who are unpaid family workers. those who do not have a job and are not actively seeking employment.
Which enterprise is NOT an example of a market?
Not: painting one's house Is: a neighborhood lemonade stand ticket scalping the New York Stock Exchange
The classical form of the production function states that:
Output = f(L, K)
What occurs during a negative demand shock?
Output and price level decrease.
_____ occurs when goods and services are produced with as few resources as possible, while _____ occurs when the mix of goods and services produced is the most desired by society.
Production efficiency; allocative efficiency
_____ government spending, _____ transfer payments, and _____ taxes are all examples of contractionary fiscal policy.
Reducing; reducing; raising
Which question would be considered a normative question?
Should obstacle races be regulated to ensure the safety of its participants?
The largest category of federal government spending in 2015 was:
Social Security.
What is the main claim of the aggregate expenditures model?
Spending will generate income, which allows for more spending.
Which statement concerning the structure of the Federal Reserve System is correct?
The Chair and Vice Chair of the Board of Governors are appointed by the president and confirmed by the Senate for terms of 4 years.
Which of the following acts created the central bank of the United States as we know it today?
The Federal Reserve Act of 1913
Which scenario does NOT fall under the category of microeconomics?
The cost of living has risen due to rising housing and food prices.
If bagels and doughnuts are substitute goods, then which scenario is likely to occur if the price of bagels is reduced?
The demand curve for doughnuts will shift to the left.
Markets tend to provide too little of products with external benefits.
True
Which is NOT an example of infrastructure?
Walmart stores is the federal highway system airports the Hoover Dam
Which of the following is the LEAST liquid?
a Picasso painting
When a scarce good or resource is consumed by the person who does not value it most, economists refer to the situation as:
a misallocation of resources.
Getting a flu shot reduces the chances of spreading the illness to one's classmates and friends. Why, then, is this considered a market failure due to external benefits?
because the number of people who obtain flu shots is less than the socially optimal quantity
If a pizza parlor uses an oven in its production process, the oven is an example of which factor of production?
capital
Legislators debate for six months on which spending programs to utilize to manipulate the business cycle. This is an example of the:
decision lag.
If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing:
deflation.
Open market operations involve the purchase and sale of:
government securities.
Technology:
improves the productivity of all factors.
When quantity demanded in a market equals quantity supplied, then the:
market is in equilibrium.
If the Federal Reserve sets a fixed rate for money supply growth, it is using:
monetary targeting.
Traditional Individual Retirement Accounts (IRAs) are taxed:
only when you make withdrawals.
What is the most important function of the Federal Reserve?
open market operations
The _____ of parking at school includes the amount of time a person has to search for a parking space.
opportunity cost
The relationship between economic freedom and per capita GDP is:
positive.
The gap between the supply curve and the market price is called:
producer surplus.
A production function:
shows the output that is produced using different combinations of inputs combined with existing technology.
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.
$25; $15
Suppose that a customer's willingness to pay for a product is $1,480, and the seller's willingness to sell is $1,210. If the negotiated price is $1,479, how much is producer surplus?
$269
If the actual growth rate of U.S. GDP was 1.25% from the first quarter to the second quarter, the Bureau of Economic Analysis would report the annualized rate as:
5%.
How does the spending multiplier compare between a $1,000 increase in government spending and a $1,000 decrease in taxes collected?
An increase in government spending has a greater spending multiplier than an equivalent tax decrease.
Which of the following would NOT shift the AD curve?
An increase in market power occurs in the airline industry.
_____ is a reduction in the rate of inflation.
Disinflation
What distinguishes fiat money from other types of money?
Fiat money has value because it is accepted by the public as money while other types of money may have monetary value based on the material of which the money is made.
Which statement about the Rule of 70 is true?
It is fairly accurate for small growth rates.
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.
In the simple Keynesian model of the private economy, which of the following is assumed?
There is considerable slack in the economy.
Which of these assets is the LEAST liquid?
a farm
If the federal government were required to balance its budget annually:
a recession would lead to higher taxes or reduced spending.
According to Malthus, a fixed quantity of land and a growing human population will eventually produce:
a stationary state in which growth will cease.
The Federal Reserve can purchase _____ to fund fiscal policy, resulting in _____.
bonds; an increase in the money supply
Suppose short-run aggregate supply shifts to the left because of a decrease in the supply of steel. The Federal Reserve fights the resulting recession with expansionary monetary policy. This will:
cause inflation.
Which type of unemployment do economists attempt to resolve using economic policy?
cyclical unemployment
When investors wish to increase their investment activities by using the market for loanable funds:
demand shifts right.
Consumer surplus is defined as the:
gap between the demand curve and the market price.
In the Keynesian model, the principal determinant of saving is:
income
When the Fed buys bonds, its demand _____ the price of bonds, _____ nominal interest rates.
increases; decreasing
The _____ lag is the time policymakers must wait for economic data to be collected, processed, and reported.
information
A good example of a government-imposed price floor is:
minimum wage.
The broadest measure of inflation is:
the GDP deflator.
If your salary was $50,000 last year, and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be this year assuming the CPI has risen from 110 to 114?
51,818
Which of the following illustrates the paradox of thrift?
Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.
Suppose policymakers wish to use fiscal policy to fight inflation. Which statement, then, is MOST accurate?
Essentially, the way to lower the inflation rate is to decrease aggregate demand, causing a rise in unemployment.
_____ involves increasing government spending, increasing transfer payments, and/or decreasing taxes.
Expansionary fiscal policy
The Federal Reserve will increase the money supply by a set percentage every year at a level consistent with long-term price stability and economic growth if it is following:
Friedman's monetary rule.
At the end of the term, Vicky wants to sell her economics textbook for at least $25, otherwise she would keep it. George is looking to buy a textbook because he's taking the class next term, and he is willing to pay at most $60. If Vicky agrees to sell the textbook to George for $45:
George's consumer surplus is $15 and Vicky's producer surplus is $20.
The concept of diminishing returns to capital would suggest that an additional unit of capital would be most productive in which of the following countries?
Honduras, which has 20 units of capital per worker Not: Canada, which has 100 units of capital per worker Brazil, which has 50 units of capital per worker The additional unit of capital would be equally productive in all three countries.
Which of the following is not true regarding the informal economy?
Informal market activities do not contribute to the standard of living of citizens.
Which of these would increase M1 in the country where Joe, Nan, and the Hardware Store are located?
Joe withdraws $500 from his savings account and deposits it in his checking account.
Which of the following did classical economists believe would happen if the economy experienced a downturn?
The economy would self-correct.
_____ is the change in consumption associated with a change in income.
The marginal propensity to consume
One of the most important ingredients in bubble tea is the tapioca pearls that are added to the tea. If the price of tapioca flour increases, what will happen to the supply of bubble tea, all else being equal?
The supply of bubble tea will decrease.
Which statement is TRUE about markets?
They can contain legal or illegal activity conducted by any individual or business.
When workers lose their job, they file for unemployment benefits; therefore government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending on unemployment programs shrinks. Based on the given information, which of the following is correct?
Unemployment compensation is a form of an automatic stabilizer.
If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:
decreases by $10 billion.
(Figure: Determining Surplus and Loss) Consider the graph. If the price is lowered from $8 to $5, producer surplus:
decreases by $90 and deadweight loss increases by $70.
If a government collects $550 billion in taxes and spends $700 billion, it would have a:
deficit of $150 billion.
Suppose in 2009, country X had tax revenues of $550 billion and government expenditures of $700 billion. In addition, at the end of 2008, its national debt was $6.5 trillion. In 2009, country X had a _____ and at the end of 2008, a public debt of _____.
deficit of $150 billion; $6.65 trillion
An increase in the interest rate causes the aggregate _____ curve to shift _____.
demand; leftward
Which of these is NOT a leakage in money creation?
depositing a large jar of coins at the bank
When a firm can _____ its capital equipment over a shorter period, its taxes are cut _____.
depreciate; now
Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as:
discouraged workers.
The twin goals of monetary policy are:
economic growth and stable prices.
The ability to use physical resources in creative ways to produce goods and services is known as:
entrepreneurial ability, technology, and ideas.
When the interest rate falls, the value of the U.S. dollar in foreign exchange markets tends to _____ and net exports tend to _____.
fall; increase
If interest rates fall, the burden of a nation's public debt will _____ and it will be _____ difficult to service its debt.
fall; less
Which of the following items is NOT included in the GDP deflator?
imported mangoes yes turbines bubble gum fire engines
Which of the following policies do supply-side economists believe is the best for increasing the standard of living?
increasing investment in capital that boosts worker productivity
The largest source of federal government revenues is:
individual income taxes.
An automatic stabilizer:
is exemplified by a program such as unemployment compensation.
If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce:
less, lowering both employment and income.
Checking deposits generally have a _____ return on investment than do certificates of deposit because checking deposits are _____.
lower; more liquid
A laissez-faire approach to the question of "how to produce" would be found in a:
market economy.
Capital includes all of these EXCEPT:
not: dollar bills in a bank vault. Includes: copy machines in an insurance company. tractor loaders of a construction firm. drilling equipment at a tool-and-die company.
Which of the following sequences is in the correct order according to the business cycle?
peak; recession; trough; recovery
The supply curve for loanable funds is:
positively sloped.
The crowding-out effect recognizes that if the government sells bonds to finance spending, it can cause interest rates to _____ investment.
rise, thereby reducing
Money leakages tend to _____ during recessions, causing the actual money multiplier to _____.
rise; fall
If interest rates rise, the burden of a nation's public debt will _____ and it will be _____ difficult to service its debt.
rise; more
Which list represents monetary policy actions that are consistent with one another?
sell government bonds, raise reserve requirements, raise the discount rate
Luz sells cupcakes. According to market economics, which is the BEST signal that consumers value her product highly?
that they readily pay the full price per cupcake
In the United States, real GDP is measured by:
the Bureau of Economic Analysis.
What event was a major influence on the development of macroeconomics?
the Great Depression
Firms decide how much to invest by comparing the rate of return on their projects with:
the interest rate.
Which of the following would not be included in official GDP measures?
the lost wages from taking time off work due to bad air pollution
Monetary targeting is setting a steady growth rate in:
the money supply.
At any price below the equilibrium price:
the quantity demanded exceeds the quantity supplied in the market.
Which of the following is NOT an effective tool used by government to promote economic growth?
trade barriers to protect domestic industries
If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are:
underutilized.
Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. What is the change in his bank's required reserves?
375
The 45-degree line in the Keynesian model represents:
AE = Y.
In 2012, the group with the highest unemployment rate in the United States was:
African Americans.
Which of the following is a problem in measuring consumer prices?
All answer choices are correct.
Suppose the Federal Reserve raises interest rates. Which situation would MOST likely trigger such a policy move?
The U.S. dollar had depreciated and inflation was high.
Which statement is NOT a macroeconomic issue?
The production of automobiles decreased last year.
To counteract a positive demand shock, the Federal Reserve uses _____ monetary policy, which _____.
contractionary; reduces both output and the price level
All of these are classified as "near monies" rather than money for the reasons specified EXCEPT:
except: credit cards, because they do not provide a store of value. is: small-denomination time deposits, because they cannot be used as a medium of exchange and carry penalties for early liquidation. savings deposits, because savings cannot be spent. It must be transferred into cash or checking to be spent. money market deposit accounts, because, while checks can be written, there are restrictions, such as limits on the number of withdrawals per month that keep them from serving daily needs as a medium of exchange.
In times of economic downturn, the Federal Reserve will engage in _____ monetary policy by _____ bonds.
expansionary; buying
Inflation is a:
general rise in prices.
Barter as a system tends to work only:
in primitive economies with little product variety.
What were the primary causes of the 2007-2009 U.S. financial crisis?
low interest rates and easy lending standards
According to the Taylor rule, the lower the inflation rate, other things equal, the:
lower the federal funds target rate.
If the economy is facing inflationary pressures, the Federal Reserve will:
raise interest rates.
Under a cyclically balanced budget, a government should _____ when the economy is growing and _____ when GDP is declining.
raise taxes; raise spending
To avoid double-counting output in GDP measures, _____ are excluded in GDP.
raw materials
If the price of used plug-in electric cars is expected to rise in six months, the reaction in the supply of those cars in the market today would likely be a(n):
shift of the supply curve to the left.
Improvements in production capacity will:
shift the PPF outward.
Aggregate expenditures are equal to:
the total of consumption plus investment plus government expenditures plus exports minus imports.
Generational imbalance would not be a problem if:
all government projects were short-term.
If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after five years?
$2,552.56
Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How much money can the banking system create?
$6,000
If disposable income is $250 and saving is $50, how much is the average propensity to consume?
0.8
The money multiplier is:
1 divided by the reserve requirement.
If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield?
5.26%
Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true?
M1 went down by $5,000, but M2 was unchanged.
Which statement is correct?
M2 includes M1.
Which of the following does NOT represent an increase in the level of human resources available to an economy?
a decrease in the unemployment rate
If a government collects $1,400 in tax revenue and spends $1,600, it has:
a deficit of $200.
Suppose the economy is growing at 4% a year, inflation is measured at 0.5% a year, and the federal deficit is relatively high. An economist who suggests that we do nothing is advocating:
a functional finance approach to federal budgeting.
In general terms, which item is an example of an inferior good?
a city bus
The solution to simultaneous deflation and unemployment is to shift the:
aggregate demand curve to the right.
The producer price index contains:
aggregate measures of price changes, organized by stage of processing.
What does the 45-degree line in the Aggregate Expenditures model represent?
all consumption and no saving
Which of these is considered a supply shock?
an increase in input costs
Which factor would shift the demand curve for gasoline to the right?
an increase in national income
Which of these will cause the supply of loanable funds curve to shift leftward?
an increase in the government deficit
Which of these is a liability for a bank?
customers' checking account balances
As GDP decreases, tax revenues _____, which tend to _____ the initial decline in GDP.
decline; partially offset
Jody purchases a stock from her employer, Acme Corporation. This is an example of _____ finance.
direct
When the increase in prices goes from 5% to 2%, this is referred to as:
disinflation
Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living:
fell by 1%.
Core inflation is found by removing _____ from the consumer price index.
food and energy
Which of these is a basic goal of the Federal Reserve System?
full employment
The budget philosophy closest in spirit to Keynesian economics is:
functional finance.
Producer surplus is defined as the:
gap between the supply curve and the market price.
What is the best measure of economic growth and standards of living in a country?
real GDP per capita
Over the past century, when worker productivity rose:
real wages rose.
Which of these is an alternative countercyclical policy to a tight money policy if the policy goal is to reduce inflation?
increase taxes
When current real output exceeds potential real output, the Federal Reserve will _____ interest rates in an effort to fight _____.
increase; inflation
A lower reserve requirement:
increases the ability of banks to make loans.
If the government decrees that bottle tops will be treated as money, then a bottle top:
is called fiat money.
The focus of supply-side fiscal policies is on:
long-run economic growth.
Financial institutions:
reduce information costs, reduce transaction costs, and diversify assets.
When banks hold excess reserves, they:
reduce the actual money multiplier.
Which of the following is an example of contractionary fiscal policy?
reducing military spending
The introduction of the tablet computer to the U.S. economy would BEST be represented with a production possibilities frontier (PPF) as a:
outward shift of the PPF.
Which type of payment would NOT be a market transaction?
payment made to a disaster victim
Frictional unemployment is:
short-term unemployment associated with people who are switching jobs.
Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:
supply-side fiscal policy.
The Laffer curve has which variables on its axes?
tax rates and tax revenue
What is the primary explanation for the rapid growth of the U.S. economy over the last century?
technological progress
Which of the following groups must agree in order to implement fiscal policy?
the Senate, House of Representatives, and executive branch
The reason bond prices and interest rates are inversely related is because:
the coupon payment is fixed for the life of a bond.
The Taylor rule suggests that:
the federal funds target rate should be equal to 2% plus the inflation rate plus one-half the inflation gap plus one-half the output gap.
A business cycle is:
the periodic fluctuation of economic activity.
When the Federal Reserve prints money, what does it do with it?
buys bonds to reduce the interest rate
Why are funds in a savings account NOT considered part of the M1 money supply?
The funds are not spendable as a medium of exchange.
If the reserve requirement is 25% and a new deposit leads to a potential increase in the money supply of $4,000, the amount of the new deposit must equal:
$1,000.
If a $1,000 bond has a coupon rate of 11% and the market interest rate falls to 7%, what would a person expect to pay for that bond?
$1,571.43
U.S. interest on its national debt, measured as a percentage of GDP, fell during the _____ and rose during the _____.
1990s; 1980s
If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is:
2.4%.
If an economy's GDP will double in 25 years, then its growth rate must be about:
2.8%.
The housing bubble collapsed from:
2007 to 2009.
If a bank has a total of $80,000 in deposits and has made three loans in the amounts of $10,000, $20,000, and $30,000, what is this bank's reserve ratio (assuming it has no other deposits or made any other loans)?
25%
The money supply rises 6% at the same time the country's output rises 2%. What would occur in this country based on the equation of exchange?
4% inflation
If the reserve requirement is 20%, but the banks hold an additional 10% of deposits as excess reserves, what is the leakage-adjusted money multiplier?
3.3
If the reserve requirement is 2.5%, the potential money multiplier is:
40.
Suppose banks hold 20% of money in reserves. What is the money multiplier?
5
Which statement is a characteristic of the quantity theory of money?
It is a product of the classical school of economics.
Which economists believe that fiscal policy is effective, while monetary policy may be ineffective?
Keynesians
Who will pay off a deferment on a college loan?
the student at a later date
In counteracting demand shocks, the Federal Reserve can achieve:
both full employment and price stability.
Suppose a perpetuity bond with a face value of $1,000 has a coupon rate of 8%. If market interest rates rise to 12%, the price of the bond:
falls to $666.67.
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:
falls to $875.
If the reserve requirement is 25%, then a $500 increase in deposits means that the money supply:
has the potential to increase by $2,000.
Which of these circumstances would NOT affect the supply of new automobiles?
higher interest rates for new car financing would a subsidy for struggling automobile manufacturers a labor strike in the steel industry an improvement in automobile manufacturing technology
The _____ the opportunity cost of an activity, the _____ a person will do that activity.
higher; less
Corporate bonds generally have a _____ return on investment than do checking deposits because bonds are _____.
higher; riskier
The provision of Pell Grants and the G.I. Bill are examples of government investment in:
human capital.
Which of these is NOT a measure taken by the European Central Bank to prevent the financial crises in individual countries from collapsing the Eurozone?
increasing the rate it paid on bank deposits
Which of the following measures is an example of expansionary fiscal policy?
increasing unemployment compensation
If actual unemployment is at its natural rate:
inflation is very low.
If real GDP at full employment is $5 billion while current GDP is $6 billion, a(n) _____ exists, and will require a _____ in spending to bring the economy back to full employment.
inflationary gap; decrease
If someone accepts a job in Seattle as a financial analyst, he must give up the chance to accept a similar job in Australia. Giving up the job in Australia is his:
opportunity cost.
A market exists when:
people exchange money for goods and services.
The _____ is the sum of past _____.
public debt; budget deficits
If the economy has high levels of unemployment, the Federal Reserve will:
reduce interest rates.
If a country's population increases at a higher rate than the growth in its real GDP:
the standard of living in the country has declined.
Which topic is a macroeconomic topic?
the study of the business cycle
In the equation of exchange, if M = $2 trillion, P = 1.5, and Q = $8 trillion:
the velocity of money (V) = 6.
If a bank's required reserve ratio is 10%, an initial injection of $2,000 would increase the overall money supply by up to:
$20,000.
As the price of orange juice rises, the:
demand for grape juice rises.
Liquidity refers to:
how quickly, easily, and reliably an asset can be converted into a medium of exchange.
If the potential money multiplier is 4, then the reserve requirement is:
0.25.
Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is:
0.5 lawn mowed.
The slope of the saving schedule is:
1 minus the marginal propensity to consume.
If the marginal propensity to consume is 0.9, by how much will $100 of government spending increase GDP?
1,000
Which of these is (are) true? I. Tighter lending standards tend to increase the money multiplier, making it easier for the Fed to use its tools effectively. II. If foreigners become less confident in the ability of the U.S. dollar to hold its value, the actual money multiplier will rise. III. If there is a general rise in fear of the financial system, the potential money multiplier will fall.
II only
The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by:
enhancing physical and human capital.
Suppose that while households are deciding to increase savings, the demand by firms for investment funds falls. In the market for loanable funds, the real interest rate will _____ and the quantity of loanable funds will _____.
fall; rise, fall, or stay the same
Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%:
creditors gain at the expense of debtors.
The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.
disposable income; consumption
Suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. One of the effects is a(n):
drop in the quantity of sugar consumed.
What type of government spending would be most effective in mitigating the crowding-out effect?
education subsidies
Investment in human capital refers to:
education, on-the-job training, and professional training activities.
The inflation rate is 4%. If Social Security payments automatically rise by 4%, this adjustment is authorized by an:
escalator clause.
If Abigail withdraws $300 cash from her checking account, her bank's assets then:
fall by $300 and liabilities fall by $300.
Institutions that serve as the bridge between savers and borrowers are known as:
financial intermediaries.
Which of these is NOT a way financial institutions reduce risk?
guaranteeing a high rate of return for all lenders is diversifying funds performing credit checks on borrowers collecting information helpful for risk assessment
If the reserve requirement is 10%, then a $6,000 decrease in deposits means that the money supply:
has the potential to decrease by $60,000.
According to the classical model, which of the following developments does NOT contribute to economic growth?
higher interest rates do labor productivity more capital technological change
With a negative supply shock, the Federal Reserve has to decide whether to:
increase inflation and decrease unemployment, or decrease inflation and increase unemployment.
Which of the following is NOT an example of an improvement to human capital?
increasing the number of machines available to workers
A country operating inside of its production possibilities frontier (PPF) is operating:
inefficiently but in an area that can be attained.
An expansionary fiscal policy can result in:
inflation and higher GDP.
The twin perils of the modern macro economy are said to be:
inflation and unemployment.
Opportunity costs:
influence all economic decisions.
Monetary policy, like fiscal policy, is subject to _____ lags.
information, implementation, and decision
The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases:
interest rates will rise.
The reward for saving is called _____, and this variable is placed on the _____ axis of the loanable funds market graph.
interest; vertical
The demand curve for loanable funds represents _____ and is _____.
investors; downward sloping
To say that the Federal Reserve is transparent means that the Fed:
is open regarding its monetary policy.
According to public choice theorists, deficit spending:
is undertaken as a politically palatable way of funding programs.
The main feature of fractional reserve banking is that banks:
keep a portion of deposits in reserves but lend out the rest.
M2 is _____ in dollar value than M1; it also contains _____ assets.
larger; less liquid
Which headline would be LEAST likely to be studied in macroeconomics?
least: GM Expands Car Sales in China most: Economic Growth Rises Slow and Steady Unemployment Falls to a 7-Year Low The Fed Raises Interest Rates
Developed nations tend to have:
limited labor supplies but lots of capital.
The dramatic collapse in the price of technology stocks in 2001-2003, coupled with a short recession in 2001, caused the Federal Reserve to _____ interest rates to stimulate _____.
lower; employment
If mangos were widely accepted for purposes of exchange:
mangos would be money.
In a _____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources.
market; planned
Sasha buys a pair of shoes for $200. She pays for them with 200 one-dollar bills. The dollar bills, in this case, are functioning as a:
medium of exchange.
Which of the following assets is MOST liquid?
money
Which of these would be called near money?
money market deposit accounts
In the equation of exchange, the term P × Q is the same as:
nominal GDP.
If an increase in income leads to an increase in the demand for opera tickets, then operas are a(n) _____ good.
normal
Which is NOT considered a basic economic question?
not How will the system accommodate change? is How will these goods and services be produced? Who will receive the goods and services? What goods and services will be produced?
The main tool of monetary policy is:
open market operations.
If the government of Spain decides to spend less on the military and more on health care, the forgone spending on military items represents the:
opportunity cost of the extra health care.
"Price gouging" laws are types of _____ and often result in _____.
price ceilings; shortages of a scarce good
Suppose that a customer's willingness to pay for a product is $5, and the seller's willingness to sell is $2. If the negotiated price is $4, how much is consumer surplus?
$1
Suppose that a customer's willingness to pay for a product is $1,480, and the seller's willingness to sell is $1,210. If the negotiated price is $1,300, how much is consumer surplus?
$180
Suppose that a customer's willingness to pay for a product is $5, and the seller's willingness to sell is $2. If the negotiated price is $3, how much is consumer surplus?
$2
Jackie finds a pair of jeans that she likes but the price tag is missing. She is willing to buy it as long as it's not more than $100. The cashier informs Jackie that the price is $72. Jackie buys the jeans, and therefore achieved a consumer surplus of:
$28, the difference between what she was willing to pay and the price.
A guitar is produced in California using $100 in raw materials and sells for $300 in a guitar shop. Each guitar that is produced contributes _____ to U.S. GDP.
$300
A lawyer can argue a case in court for one hour and make $300. She could alternatively use that hour of time to type a legal brief in her office. What is the opportunity cost of her typing the legal brief?
$300, since that is the amount she could have made by arguing a case in court
Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is producer surplus?
$4
Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of:
$4 and a producer surplus of $2.
If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.
$5,000
If the reserve requirement is 10%, a withdrawal of $500 leads to a potential decrease in the money supply of:
$5,000.
What is the price of a perpetuity bond with an annual interest payment of $50 if market interest rates are 10%?
$500
If a perpetuity bond has an interest payment of $80 and your required yield is 10%, the most you would be willing to pay for the bond is:
$800.
If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?
$900
If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was:
0.625
If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is:
125
The yield on a perpetuity bond that has an interest payment of $60 and a price of $1,200 is:
5%.
The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 3%, output gap is 1%, and the inflation gap is 1%, the target interest rate is:
6%
Suppose a one-year bond with a face value of $200 is sold for $188. What is the bond's yield?
6.4%
If the marginal propensity to consume is 0.85, the value of the spending multiplier will be:
6.67.
Which is an example of money being used as a unit of account?
A restaurant's profits for the week of October 3 to October 10 are $1,250.
If a country increases the amount of goods it imports but its exports remain unchanged:
AD shifts left.
If business expectations become less favorable, what will likely happen to the AD curve?
AD shifts left.
When the Federal Reserve pursues expansionary monetary policy, which of these happens?
AD shifts right.
Expansionary monetary policy shifts the _____ curve to the _____.
AD; right
Which of the following would likely NOT cause inflation?
Consumer confidence falls due to global economic concerns.
Suppose there is news of rising unemployment. Which scenario is most likely?
Households save in anticipation of bad times, the supply of loanable funds rises, interest rates fall, and firms take advantage of lower interest rates and make more investments, all of which stimulates the economy.
Which of these are functions performed by the Federal Reserve Banks and their branches? I. regulating and supervising member banks II. distributing coins and currency III. setting interest rates paid by homeowners
I and II
_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy.
Increasing; increasing; lowering
According to the Taylor rule, what will the Federal Reserve do if output falls below its potential GDP?
It will lower its target.
Our current personal income tax system is progressive: Income tax rates rise with rising incomes and are lower for low-income individuals. Some policymakers have favored a "flat tax" as a replacement to our modestly progressive income tax system. Most exemptions and deductions would be eliminated, and a single low tax rate would be applied to personal income. Would such a change in the tax laws alter the automatic stabilization characteristics of the personal income tax?
It would make taxes less effective as an automatic stabilizer as it would increase individuals' disposable income.
Checking accounts are counted as part of:
M1 and M2.
Suppose Mary saves enough funds for a down payment on a house. When she buys her home, she withdraws the savings to make the down payment and borrows $200,000 on a mortgage loan. Which statement accurately describes Mary's interactions with her bank?
Mary goes from being a supplier to demanding loanable funds with the bank acting as an intermediary.
Which of the following is NOT true about the Fed's Board of Governors?
Not: Members of the Board of Governors are elected by voters in the region they serve. IS: Members of the Board of Governors serve one 14-year term. The Board of Governors is located in Washington, D.C. There are seven members of the Board of Governors.
In the equation of exchange, if M = $1.5 trillion, V = 7, and P = 1.05, then:
Q = $10 trillion.
Federal Reserve Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves into trouble by taking on too much risk. So, why did the Fed do it?
The Fed feared that failures of very large institutions threatened the stability of the entire financial system.
If an economy (gross domestic product) is growing faster than the growth of national debt held by the public (both domestic and foreign), what will be its impact on the national debt?
The burden of the debt on the annual budget will become smaller as long as interest rates are low. If GDP grows faster than the growth of the national debt, the burden of that debt on the annual budget becomes smaller as long as interest rates are low. However, when interest rates rise, the real cost of paying added interest each year is that it takes away money that could have been spent on other programs or projects. Arguments against the assertion that the national debt is bankrupting the country include: (1) Not all debt is held by the public—a sizeable portion of the debt is held by other government agencies. (2) Of the debt held by the public, about half of that is held domestically; therefore, the tax payments to pay the interest on that debt goes to the citizens. (3) If the economy is growing faster than the debt is growing, then the debt as a percentage of GDP is declining. To the extent that GDP reflects the ability of the country to pay its debt, our position is becoming better, even if the absolute size of the debt is large.
Which of the following illustrates the information lag?
The economy is predicted to increase by 0.1% in July, but the numbers are revised in August to reflect an actual 2% decrease.
An interest rate that is low for only a short period of time is called:
a teaser rate.
Which of the following factors is NOT generally viewed by economists as critical to economic growth?
access to large amounts of natural resources
After the acceptance of Keynesian analysis, the government:
actions toward macroeconomic policy grew significantly.
Which one of the following would NOT lead to higher prices?
an increase in the supply of food
Retirees and creditors:
are hurt by inflation because their purchasing power is reduced.
All of the following are functions of money EXCEPT:
as a standard value. is as a unit of account. as a store of value. as a medium of exchange.
At the peak of the business cycle, the economy is typically operating:
at its capacity.
Suppose that a customer's willingness to pay for a product is $120, and the seller's willingness to sell is $110. If the negotiated price is $119:
producer surplus is greater than consumer surplus.
A market economy is also known as a _____ economy, and decisions are made by _____.
capitalist; private individuals
M1 includes:
cash, demand deposits, and other checkable deposits.
Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the:
catch-up effect.
The idea that a change in the money supply would affect prices but not real GDP is associated with the:
classical monetary transmission mechanism.
A production possibilities frontier that is a straight line is the result of:
constant opportunity costs.
Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $65:
consumer surplus is greater than producer surplus.
According to the crowding-out effect, if the government sells bonds to finance spending, _____ can eventually fall.
consumption and investment
If a monetary authority uses inflation targeting of 1% to 2% per year, deflation calls for:
quantitative easing.
Other factors held constant, as the price of an iPad rises, the:
quantity demanded for iPads falls.
Economic growth is most commonly measured by:
real GDP per capita.
Rational behavior requires thinking at the margin. Which example represents this type of thinking?
deciding whether a second burger is worth the extra $2 deciding whether the overtime pay is worth working on your day off deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery All of these examples represent thinking at the margin.
The limits on international trade include all of these EXCEPT:
decreasing opportunity costs and increasing returns.
Which is NOT a source of economic growth?
reducing the level of international trade is increasing business investment increasing research and development reducing barriers to financial aid for higher education
When a financial institution provides a standardized financial product such as a mortgage, it is:
reducing transaction costs.
A good example of a government imposed-price ceiling is:
rent controls.
Assume that market interest rates are 6% and the bondholder receives a $60 coupon payment per year on a bond with a face value of $1,000. If market interest rates fall to 4%, the bond price:
rises to $1,500.
The supply curve for loanable funds represents _____ and is _____.
savers; upward sloping
The "business cycle" refers to:
short-run fluctuations in macroeconomic activity.
Suppose that a major drought causes a 30 percent reduction in the peanut harvest. If there is no change in demand, this event would cause a _____ at the original equilibrium price, and the equilibrium price will therefore _____ and the equilibrium quantity will _____.
shortage; rise; fall
The theory of comparative advantage says that countries:
should export those goods they can produce at a lower opportunity cost than another country.
During 2010-2013, the United States underwent a _____ economic recovery with _____.
slow; persistent unemployment
If Jack Sparrow buries a chest of gold on a deserted island and plans to come back for it later, then the gold is functioning as a:
store of value.
If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing:
structural unemployment.
If the price the U.S. Post Office charges to deliver Express Mail rises, the demand facing FedEx will rise because its respective services are _____ goods.
substitute
Suppose the government implements a policy reducing the rewards earned by savers. In this case, the _____ loanable funds shifts _____.
supply of; left
Which of the following would promote long-run economic growth?
technological advancement
Which factor of production enhances the productive capacity of all other resources in the production function?
technology
If the Federal Reserve sets the federal funds rate equal to 2 plus the inflation rate plus one-half of the inflation gap plus one-half of the output gap, it is following:
the Taylor rule.
If banks increase excess reserves to increase their ability to absorb a higher rate of defaults:
the actual multiplier will fall.
If a government always balances its budget:
the effect of an increase in government spending on aggregate expenditures is weakened.
A functional finance economist would advocate doing nothing if:
the federal deficit was $1 trillion, economic growth was 4%, and inflation was zero.
The law of demand states that:
the lower a product's price, the more of that product consumers will purchase during a given period.
Supply is defined as:
the maximum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant.
As the real interest rate falls:
the quantity demanded of loanable funds rises.
The discount rate is:
the rate regional Federal Reserve banks charge depository institutions to borrow reserves.
Which is an example of capital in the production process of an amusement park?
the roller coaster
Flu vaccination shots provide external benefits. Thus:
too few flu vaccination shots are given.
scarcity is best defined as when
unlimited wants exceed limited resources