Macro Final
Suppose GDP is $15 trillion, with $8 trillion coming from consumption, $2.5 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $1 trillion coming from net exports. Also suppose that across the whole economy, personal income is $12 trillion. If the government collects $1.5 trillion in personal taxes, then disposable income will be: a. $13.5 trillion.b. $12.0 trillion.c. $10.5 trillion.d. None of the above.
10.5 trillion
It is assumed that when the economy reaches equilibrium in the "flatter" segment of the short run ASSR curve: a. economic resources are fully employed b. increases in real GDP are accompanied by substantial increases in production cost @ the economy has excess productive capacity and cyclically unemployed workers resulting in less inflation as the economy grows. d. there are unplanned decreases in inventory levels e. any increase in RGDP is likely to be accompanied by significant price inflation.
C
Suppose GDP is $16 trillion, with $10 trillion coming from consumption, $2 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $500 billion coming from net exports. Also suppose that across the whole economy, depreciation (consumption of fixed capital) totals $1 trillion. From these figures, we see that net domestic product equals: LO4a. $17.0 trillion.b. $16.0 trillion.c. $15.5 trillion.d. None of the above.
None of the above
Which of the following transactions are counted in GDP? LO1Select one or more of the answers from the choices shown.a. Kerry buys a new sweater to wear this winter.b. Patricia receives a Social Security check.c. Roberto gives his daughter $50 for her birthday.d. Nayana sells $1,000 of General Electric stock.e. Jasmine buys a new car.f. Molly buys a used car.
a. Kerry buys a new sweater to wear this winter e. Jasmine buys a new car
Under ordinary circumstances, if an economy experiencing high inflation, which of the following fiscal policies would provide the most efficient combination for correction? a. increasing gov expenditures and taxes by equal-size amounts b. reducing gov expenditures and increase taxes c. reducing gov expenditures and reducing taxes d. increasing unemployment and compensation benefits e. increasing the money supply
b. reducing gov expenditures and increase taxes
f the demand for a firm's output unexpectedly decreases, you would expect its inventory to: LO4a. increase.b. decrease.c. remain the same.d. increase or remain the same, depending on whether prices are sticky.
d. Increase or remain the same, depending on whether prices are sticky.
23. In the final analysis, the value of money: a. is determined by how much gold or silver backs it. b. depends on the costs incurred to produce it. c. is contained in the interest rate that money pays when it is not in a bank. d. is that it is readily accepted as a medium of exchange thus making economic transactions easier.
D
The official unemployment rate is 7%, which contains a cyclical unemplovment component of 2%. Potential GDP is $2,000,000. What is the GDP Gap as a percentage of GDP (potential GDP)? a. 9% b. 7% C. 5% d. 4% e 2%
D
An important reason why members of the Federal Reserve's Board of Governors are each given extremely long, 14-year terms is to: LO4a. insulate members from political pressures that could result in inflation.b. help older members avoid job searches before retiring.c. attract younger people with lots of time left in their careers.d. avoid the trouble of constantly having to deal with new members.
Insulate members from political pressures that could result in inflation
The two conflicting goals facing commercial banks are: LO3a. profit and liquidity.b. profit and loss.c. deposits and withdrawals.d. assets and liabilities.
Profit and liquidity
True or False. Because price stickiness only matters in the short run, economists are comfortable using just one macroeconomic model for all situations.
False
True or False: A higher price level increases aggregate expenditures.
False
True or False: If spending exceeds output, real GDP will decline as firms cut back on production.
False
True or False: Lenders are helped by unanticipated inflation.
False
True or False: The aggregate expenditures model assumes flexible prices.
False
Suppose that AD and AS intersect at an output level that is higher than the full-employment output level. After the economy adjusts back to equilibrium in the long run, the price level will be __________ . LO2 a. higher than it is now b. lower than it is now c. the same as it is now
Higher than it is now
Aggregate supply shocks can cause ________ inflation rates that are accompanied by ________ unemployment rates. LO3 a. higher; higher. b. higher; lower. c. lower; higher. d. lower; lower.
Higher; higher.
Cost-push inflation occurs in the presence of __________________________. LO3a. excess inventoryb. a trade deficitc. rising per-unit production costsd. excess demand for goods and services
c
Real GDP equals _________ times _________. LO4a. average hours of work; quantity of capital.b. average hours of work; allocative efficiency.c. labor input; labor productivity.d. natural resources; improvements in technology.
c
n year one, Adam earns $1,000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a total of $1,500. Out of that $1,500, he saves $200. What is Adam's MPC out of his $500 raise? LO1a. 0.50.b. 0.75.c. 0.80.d. 1.00.
c
If inventories unexpectedly rise, then production ________ sales and firms will respond by ________ output. LO3a. trails; expandingb. trails; reducingc. exceeds; expanding d. exceeds; reducing
d
The unemployment rate that is consistent with full employment is _______________. LO2a. the natural rate of unemploymentb. the unnatural rate of unemploymentc. the status quo rate of unemploymentd. cyclical unemploymente. Okun's rate of unemployment
a
When bond prices go up, interest rates go_______ . LO1 a. up b. down c. nowhere
down
If the government decreases expenditures, the AE curve will shift _______ and the AD curve will shift _______. LO7a. down; left.b. down; right.c. up; left.d. up; right.
down left
Suppose that firms were expecting inflation to be 3 percent, but then it actually turned out to be 7 percent. Other things equal, firm profits will be: LO4 a. smaller than expected. b. larger than expected.
larger than expected
A price ceiling will result in a shortage only if the ceiling price is ____________ the equilibrium price. LO6a. less thanb. equal toc. greater than
less than
A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. What is the economy's capital stock at the end of the year? LO2a. $1,150,000.b. $1,100,000.c. $1,000,000.d. $850,000.e. $800,000.
$1,100,000
Suppose that a small country currently has $4 million of currency in circulation, $6 million of checkable deposits, $200 million of savings deposits, $40 million of small denominated time deposits, and $30 million of money market mutual fund deposits. From these numbers we see that this small country's M1 money supply is ____________, while ____________ its M2 money supply is. LO2a. $10 million; $280 million.b. $10 million; $270 million. c. $210 million; $280 million.d. $250 million; $270 million.
$10 million; $280 million
Suppose that the Fed has set the reserve ratio at 10 percent and that banks collectively have $2 billion in excess reserves. What is the maximum amount of new checkable-deposit money that can be created by the banking system? LO5a. $0.b. $200 millionc. $2 billiond. $20 billion
$20 billion
A bank currently has $100,000 in checkable deposits and $15,000 in actual reserves. If the reserve ratio is 20 percent, the bank has ___________ in money-creating potential. If the reserve ratio is 14 percent, the bank has ___________ in money-creating potential. LO3a. $20,000; $14,000.b. $3,000; $2,100. c. -$5,000; $1,000.d. $5,000; $1,000.
- $5,000, $1,000
A bank borrows $100,000 from the Fed, leaving a $100,000 Treasury bond on deposit with the Fed to serve as collateral for the loan. The discount rate that applies to the loan is 4 percent and the Fed is currently mandating a reserve ratio of 10 percent. How much of the $100,000 borrowed by the bank must it keep as required reserves? LO3a. $0b. $4,000c. $10,000d. $100,000
0
If real GDP grows at 7 percent per year, then real GDP will double in approximately _________ years. LO1a. 70b. 14c. 10d. 7
10
A commercial bank has $100 million in checkable-deposit liabilities and $12 million in actual reserves. The required reserve ratio is 10 percent. How big are the bank's excess reserves? LO2a. $100 millionb. $88 millionc. $12 milliond. $2 million
2 million
A goldsmith has $2 million of gold in his vaults. He issues $5 million in gold receipts. His gold holdings are what fraction of the paper money (gold receipts) he has issued? LO1a. 1/10b. 1/5c. 2/5d. 5/5
2/5
Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = - $10 billion. What is the value of G? LO3a. $0.b. $10 billion.c. $20 billion.d. $30 billion.
20 billion
Suppose that the money supply is $1 trillion and money velocity is 4. Then the equation of exchange would predict nominal GDP to be: LO1 a. $1 trillion. b. $4 trillion. c. $5 trillion. d. $8 trillion.
4 trillion
If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier? a. 1.0.b. 2.5.c. 4.0.d. 5.0.
5
Kaitlin has $10,000 of savings that she may deposit with her local bank. Kaitlin wants to earn a real rate of return of at least 4 percent and she is expecting inflation to be exactly 3 percent. What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank? LO4a. 4 percentb. 5 percentc. 6 percentd. 7 percent
7%
10. If the government purposely balanced to a deficit of 3 percent of real GDP. The changes the economy's cyclically-adjusted budget from being government is engaging in a(n): a. expansionary fiscal policy. b. contractionary fiscal policy. C. neutral fiscal policy. d. low-interest rate policy.
A
13. The Debt-to-GDP ratio is useful because: a. R links the national debt to our B. It shows just how much damage the national nation's ability to pay it off.debt is doing to the country. c. It proves that too much GDP will result in a large national debt. d. It proves that budget deficits are always the result of irresponsible fiscal policy.
A
15. Unplanned changes in business inventories will NOT occur if: a the macroeconomy is in equilibrium. b. aggregate expenditures (C +I+G c. aggregate expenditures (C +1+G +X) +X) exceed production (GDP). are less than production (GDP). d. Unplanned changed to business inventories occur at all level of GDP.
A
20. Checkable deposits are classified as money because: a. they can be readily used for purchases or the payment of debts. b. banks hold currency equal to the total value of depositors accounts. c. they are ultimately the obligations of the US Treasury. d. they earn interest for depositors.
A
An important interest rate principle (discussed as "Fisher's Equation" in class lecture) is that a. nominal interest rate = real interest rate + inflation rate b. real interest rate = nominal interest rate + inflation c. nominal interest rate = real interest rate - inflation rate d. real interest rate = inflation - nominal interest rate
A
Assume the 2017 consumer price index is 160.0 and the 1992 CPI is 80.0. From this, we can conclude (approximately) that over this 25-year period: a. the dollar "cost of living" has doubled from 1992 to 2017. b. the dollar "cost of living" has remained constant over the last 25 years. c. the dollar "cost of living" is about 1.6 times larger in 2017 compared to 1992. d. a valid comparison of the "cost of living" between these two years cannot be made based on the data presented.
A
Concerning the redistributive effects of inflation, when the inflation rate is higher than expected, there exists the potential for: a. lenders (creditors) to lose and borrowers (debtors) to benefit. b. the poor to lose and the wealthy to benefit. C. the young to lose and the elderly to benefit. d. borrowers (debtors) to lose and lenders (creditors) to benefit. e. there insufficient information presented to answer the question.
A
Consider the last question. If productivity increases and there are NO other changes: a. RGDP will increase. b. aggregate work hours will increase. c. both RGDP and aggregate work hours will increase. d. none of the above
A
Credit markets (lending and borrowing) are critical for an economy to function efficiently and grow. Lending and borrowing involve the concept of "interest". Consider the following (2) statements regarding interest for your response. I. Interest can be considered the "fee" that the borrower pays to use someone else's money for the investment that will grow the economy. II.Interest can be considered the financial return to the lender for deferring consumption and saving money instead. A.Both statements are true. b. Tis true; I is false C. I is false; Il is true d. Both statements are false.
A
If the natural rate of unemployment is 5% and the actual unemployment rate is 6%, the cyclical component of the unemployment rate is equal to: a. +1% b. +5% c. +11% d. 0% e. -1%
A
In calculating this year's GDP, which of the following would an economist label as a Gross Business Investment? a. a new copy machine purchased by a university b. a new flat-screen TV purchased by a household C. 40 shares of DuPont stock purchased by an investor d. a home, built in 2015, bought from the original owners by a newly-relocated family e. all of these would be included in gross business investment
A
Recall the functions of money. When money is held so that purchasing power may be realized at a later date, money is being used as a: a. store of value b. unit of account c. medium of exchange d. collateral for loans e. none of the above
A
Referring to the diagram, If the economy moves from AD, to AD2, the increase in PL is known as: demand-pull inflation cost-push inflation c. an expansionary gap d. a contractionary gap
A
The Debt-to-GDP ratio is important because it: a.) frames the public debt as a percentage of the size of our economy. B. explains that the public debt can eliminated by the appropriate monetary policy. c. describes the interest payments owners of Treasury bonds will receive. d. all of the above
A
Which of the following is the most likely sequence that most accurately describes the mechanism by which monetary policy affects the macroeconomy (according to mainstream macroeconomic theory)? a. Ms ^; iff down ; Investment ^; AD ^; RDGP ↑ b. Ms down: iff ^: Investment ^: AD ^: RDGP ^ c. Ms ^; iff down; Investment down; AD down; RDGP down d M down; iff down ; Investment ↑; AD ^; RDGP down e) Ms ^; iff ^: Investment down; AD ^; RDGP down
A
Which of the following is true? A. If gross investment is less than deprecation, we would judge that the economy's capital stock (cumulative plant and equipment) has contracted. b. If gross investment is less than deprecation, we would judge that the economy's capital stock (cumulative plant and equipment) has expanded. c trough; expansion; recession; peak represents the proper sequence of the business cycle d peak; expansion; trough; recession represents the proper sequence of the business cycle
A
the level The short-run, fixed-price model of the economy (Chaps 10 & 11 in the text) is unrealistic for longer run analysis because the short-run model assumes neither of which are practical assumption in the long run. a fixed prices for both inputs and outputs, and unlimited production capacity only fixed prices in the long run, and no flexibility in capacity c. fixed output prices and flexible input prices d. fixed output prices and unlimited production capacity
A
At the current price level, producers supply $375 billion of final goods and services while consumers purchase $355 billion of final goods and services. The price level is: LO5a. above equilibrium.b. at equilibrium.c. below equilibrium.d. More information is needed.
Above equilibrium
Which of the following is not a function of the Fed? LO5a. Setting reserve requirements for banks.b. Advising Congress on fiscal policy.c. Regulating the supply of money.d. Serving as a lender of last resort.
Advising Congress on fiscal policy
In 1820 living standards in various places around the globe were _________ they are today. LO2a. more widely varying thanb. just as widely varying asc. less widely varying than
Answer: c. less widely varying than.
Ann Smith lost her job in a Connecticut textile plant because a general decline in the textile industry in the US. Economists would label Ann as: a. frictionally unemployed b structurally unemployed C cyclically unemployed d. employed e. institutionalized
B
Because GDP measures the aggregate "income" of the economy, it can be used as a gross measure of the material welfare of society. But there are reasons why GDP is NOT an EXACT measure of social welfare and they include which of the following? a. GDP includes the value of leisure, which is unproductive in an economic sense. b. non-market production and product quality are not captured by the GDP statistics. C GDP overstates the size of the "underground economy". D External costs are recognized in Real GDP but are excluded from Nominal GDP. E all of the above are reasons the GDP may NOT exactly measure society's true welfare.
B
Business firms expect total spending of 4,000 but actual total spending is $3,000. The resulting change in a. an unplanned inventory reduction of $1,000 an unplanned inventory increase of $1,000 a planned inventory reduction of $1,000 a planned inventory increase of $1,000
B
If investment spending (la) in the macroeconomy were to decline, the likely result would be: an increase in AD because of an increase in lg a decrease in AD because of a decrease in la an increase in lg because of an increase in AS d. a decrease in lg because of a decrease in G a none of the above because Investment only affect the economy indirectly.
B
If only price increases occur and there is no change in actual output: a. both GDP and Real GDP increase b GDP increases but there is no change in Real GDP c. there is no change In GDP, but Real GDP increases d. there will be no changes to GDP or Real GDP e. none of the above will occur
B
If the federal funds rate is below the Fed's target rate, the appropriate monetary policy action would be: a. an open market purchase b. an open market sale C. a budget deficit d. a budget surplus e more than one of the above
B
The GDP gap is the difference between: a. cyclical unemployment and the actual unemployment rate. b. actual real GDP and potential real GDP. C. actual real GDP and the natural rate of unemployment d. potential real GDP and potential real GDP in the base year e. the actual unemployment rate and the natural unemployment rate.
B
The official unemployment rate is 7%, which contains a cyclical unemployment component of 2%. If potential GDP is $2,000,000, what is the annual economic cost of this unemployment using Okun's Law? a $40,000 b) $80,000 C. $100,00 d $140,000 e $280,000
B
The unemployment rate is currently 6%. If some of the unemployed workers comprising this rate now become "discouraged workers", what will happen to the unemployment rate? a. It will increase. b It will decrease. C It will remain 6% d. There is insufficient information to answer.
B
Total labor force: 200 million Total officially unemployed: 10 million Estimated Number of "Discouraged Workers": 2 million The official unemployment rate is: a. 6.0% B 5.0% C. 4.0% d. the official unemployment rate is impossible to calculate because the discouraged workers.
B
What is the marginal propensity to consume for this economy? a. b. .50 С. .75 d. .80 e. impossible to compute
B
Which of the following is NOT a reason for why the Fed's inflation target is 2% as opposed to 0%? a 2% target rate keeps us safely away from deflation B 2% target allows for some inflation so that "real" wages can fall in a recession to increase hiring c. a 2% inflation target creates a higher nominal interest rate, allowing for decreases in the rate to be used to fight economic recessions d. all of the above are valid reasons to set the target for inflation at 2% instead of zero.
B
Consider leakages and injections in the basic aggregate (RGDP) in the economy is $310 billion, and aggregate expenditures are $300: expenditures model. If the level of income a, Injections are greater than leakages. S+T+M = Ig + G+ Ex c S+T+M. > lg + G + Ex *S+T+ M < Ig + G + Ex e. none of the above can be concluded from the information given.
C
For purposes of national income accounting, "Net Investment" equals: a. gross investment minus stock dividends b. gross investment minus inventories C gross investment minus the depreciation of capital equipment d. depreciation minus durable goods inventory e. exports minus imports
C
If the US has 15 million considered officially unemployed and 185 million officially employed, the official unemployment rate is percent of the total labor force. a. 15.0% b. 8.1% c 7.5% d. the official unemployment rate is impossible to calculate because discouraged workers must be taken into account and no data is given for them.
C
Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. The reserve requirement is 20 percent. Given the multiplier, this banking system can expand the supply of money by the maximum amount of: a. $500,000, b. $300,000, c $75,000, d. $65,000 e. $20,000
C
The Marginal Propensity to Consume (MPC) tells us: A the percentage of total spending is allocated to durable and non-durable B how much of any additional income is spent on additional consumption. consumption gode how much of our total income is spent on total consumption goods c the rate at which plant and equipment (fixed investment) depreciates d. the maximum amount of food that can be eaten at one sitting
C
The cyclically-adjusted budget tells us: a. that in a full employment economy the Federal budget should be in balance b. that the tax revenues should vary inversely with GDP. c. what the size of the fed budget deficit or surplus would be if the economy was at full employment d. the actual budget deficit or surplus realized in any given year
C
The price index In year 1 is 100.0: In year 2 it is 105.0; and in year 3 it is 115.5. Based on this information, which of the following would be true? a. year 2 inflation is 0%, and year 3 inflation is 5% b. year 2 inflation is 0%, and year 3 inflation is 15.5% c year 2 inflation is 105%, and year 3 inflation is 115.5% d. year 2 lnflation is 5%, and year 3 inflation is 15.5% E year 2 Inflation is 5%, and year 3 inflation is 10%
C
The textbook strongly argues that most of the growth in the economy since 1950 comes from increases in: a. population. b. US exports c. labor productivity d. per capita consumption e. gross business investment
C
What contributes to the general acceptance of our money being readily accepted when we make purchases? a. its status as "legal tender", meaning it use will be recognized by our judicial system. b. the fact that we have confidence that it will be accepted when we use it. c. both of the above factors explain money's general acceptance. d. neither a. nor b. explain money's general acceptance.
C
Which of the following best describes the macroeconomic role of business inventories? a Inventory levels should be kept near zero as a preferred business practice. b Inventory is mostly used for replacing returned items due to defects. C Inventory is used to deal with day-to-day fluctuations in demand thus allowing production levels to remain roughly constant in the short-run. d. Inventory is used to supply foreign demand for products as opposed to domestic demnd which is handled by current production.
C
Which of the following is FALSE? a. The GDP does not include second-hand sales because these items were already counted in GDP when they were newly-produced. b, The GDP excludes products determined to be "intermediate goods" because their value becomes part of the value of the final product that becomes part of the GDP. C The GDP includes the value of products determined to be "intermediate goods" because the production of those goods is just as important to the GDP as final goods. d. The GDP excludes the purchase or sale of stocks and bonds by financial investors. e. none of these are false
C
Which of the following most accurately describes the primary role "saving" plays in the macroeconomy? a. Saving occurs whenever current spending exceeds current income. b. Saving slows economic growth because it requires reducing consumption. C Saving finances business investment which leads to an expansion of production capacity and greater economic growth in the long run. d. Saving has no impact economic
C
Which of the following statements is FALSE? a. Sticky (inflexible) prices are the main problem for the economy in the very short run. b. Sticky (inflexible) prices require changing production (output) to deal with shocks in the short-run. c. The real problem for the economy is the long run, where prices tend to be far more inflexible than the short run because more adiustments to the initial shocks can occur. d. all of the above statements are TRUE.
C
With 3% annual rate of inflation, a lender lends $1,000 for one year and charges 8% interest. When the loan is repaid at the end of one year, how much "real" interest (net of inflation) is earned by the lender? a. $110 b. $80 c $50 d $-30 e. $-50
C
If RGDP is $1,200 billion and aggregate work hours are 80 billion, labor productivity is: a. $5.00 per hour b. $6.67 per hour c. $12.00 per hour d $15.00 per hour e. $45.00 per hour
D
When the economy enters the contraction phase of the business cycle, we can usually assume that: a. unemployment will increase and inflation will increase. b unemployment will decrease and inflation will increase. c. unemployment will decrease and inflation will decrease. d unemployment will increase and inflation will decrease. e. unemployment and inflation are both unpredictable in all circumstances
D
Which of the following statements is False? a. Over time, inflation decreases the purchasing power of fixed amounts of money. b. Generally, wage-earners are not systematically hurt by inflation because of the annual cost-of-living adjustments that have become common practice in today's workplace. C. Demand-Pull inflation is the result of total spending in the economy exceeding total production. D Cost-Push inflation will result from total spending in the economy being less than total production. E All the statements above are true.
D
"Full-Employment" means: a. a zero unemployment rate b productive capacity (plant & equipment) running 24-hours per day, 7 days per week. c. actual GDP being equal to "Real GDP" d. the unemployment rate (U) being equal to frictional unemployment (Ut) plus cyclical unemployment (Ue) e. none of the above
E
3. A person buys a newly-produced refrigerator that was made in the USA. Which of the following spending categories would this purchase fall into when accounting for the GDP? a. consumption - non-durable good b. import - non-durable good C. consumption - service d. investment - durable good e. consumption - durable good
E
Which of the following is true at the equilibrium level of GDP of $300? a. MPC = 0 b. MPC = 1 c. Ig = $300 d. Saving = Saving = Investment = $50
E
Which of the following is true? * MPC - MPS = 1 * MPC = 1+ MPS MPC is always less than MPS MPC MPS for the entire economy can be greater than one in the long run. MPC + MPS = 1
E
Which of the following shifters will cause a decrease in the consumption line? optimistic consumer expectations more household borrowing advancing technology increased government spending increased personal taxes
E
True or False: Computers and increased global competition have retarded economic growth in recent decades.
F
Suppose that an economy begins in long-run equilibrium before the price level and real GDP both decline simultaneously. If those changes were caused by only one curve shifting, then those changes are best explained as the result of: LO2 a. the AD curve shifting right. b. the AS curve shifting right. c. the AD curve shifting left. d. the AS curve shifting left.
The AD curve shifting left
The actual reason that banks must hold required reserves is: LO2a. to enhance liquidity and deter bank runs.b. to help fund the Federal Deposit Insurance Corporation, which insures bank deposits.c. to give the Fed control over the lending ability of commercial banks.d. to help increase the number of bank loans.
To give the Fed control over the lending ability of commercial banks
True or False. Larger MPCs imply larger multipliers.
True
Recall the formula that states that $V = 1/P, where V is the value of the dollar and P is the price level. If the price level falls from 1 to 0.75, what will happen to the value of the dollar? LO3a. It will rise by a third (33.3 percent).b. It will rise by a quarter (25 percent).c. It will fall by a quarter (-25 percent).d. It will fall by a third (-33.3 percent).
a. It will rise by a third (33.3 percent)
Economists agree that __________ inflation reduces real output. LO5a. cost-pushb. demand-pullc. push-pull
cost push
An economy is producing at full employment when AD unexpectedly shifts to the left. A new classical economist would assume that as the economy adjusted back to producing at full employment, the price level would ___________. LO2 a. increase b. decrease c. stay the same
decrease
Suppose that last year $30 billion in new loans were extended by banks while $50 billion in old loans were paid off by borrowers. What happened to the money supply? LO5a. Increasedb. Decreasedc. Stayed the same
decreased
A depression abroad will tend to ________ our exports, which in turn will _________ net exports, which in turn will ________ equilibrium real GDP. LO6a. reduce; reduce; reduceb. increase; increase; increasec. reduce; increase; increased. increase; reduce; reduce
educe; reduce; reduce
if total spending is just sufficient to purchase an economy's output, then the economy is: LO3a. in equilibrium.b. in recession. c. in debt.d. in expansion.
in equilibrium
If an economy has sticky prices and demand unexpectedly increases, you would expect the economy's real GDP to: LO4a. increase.b. decrease.c. remain the same.
increase
If an economy has an inflationary expenditure gap, the government could attempt to bring the economy back toward the full-employment level of GDP by ________ taxes or ________ government expenditures. LO8 a. increasing; increasing b. increasing; decreasing c. decreasing; increasing d. decreasing; decreasing
increasing; decreasing.
An increase in _______ GDP guarantees that more goods and services are being produced by an economy. LO1 a. nominal. b. real.
real
True or False: A liquidity trap occurs when expansionary monetary policy fails to work because an increase in bank reserves by the Fed does not lead to an increase in bank lending.
true
True or False: In the United States, monetary policy has two key advantages over fiscal policy: (1) isolation from political pressure and (2) speed and flexibility.
true
The Taylor Rule puts _______ as much weight on closing the unemployment gap as it does on closing the inflation gap. LO4 a. just b. twice c. half d. ten times
twice
A country's current unemployment rate is 11 percent. Economists estimate that its natural rate of unemployment is 6 percent. About how large is this economy's negative GDP gap? LO2a. 1 percentb. 3 percentc. 6 percentd. 10 percent
10%
A commercial bank sells a Treasury bond to the Federal Reserve for $100,000. The money supply: LO3a. increases by $100,000.b. decreases by $100,000.c. is unaffected by the transaction.
100000
Zion's nominal income will go up by 10 percent next year. Inflation is expected to be -2 percent next year. By approximately how much will Zion's real income change next year? LO3a. -2 percentb. 8 percentc. 10 percentd. 12 percent
12%
If the multiplier is 5 and investment increases by $3 billion, equilibrium real GDP will increase by: LO5a. $2 billion.b. $3 billion.c. $8 billion.d. $15 billion.e. None of the above.
15 billion
Suppose that firms are expecting 6 percent inflation while workers are expecting 9 percent inflation. How much of a pay raise will workers demand if their goal is to maintain the purchasing power of their incomes? LO4 a. 3 percent. b. 6 percent c. 9 percent. d. 12 percent.
9%
In response to a slowdown in overall economic activity and Increasing inventory levels, business production is decreased and many factory workers are laid off. Economists would label these workers as: a cyclically unemployed b. structurally unemployed c. frictionally unemployed d. employed e. lazy burns
A
Label each of the following scenarios as either frictional unemployment, structural unemployment, or cyclical unemployment. LO2a. Tim just graduated from college and is looking for a job.b. A recession causes a local factory to lay off 30 workers.c. Thousands of bus and truck drivers permanently lose their jobs to self-driving vehicles.d. Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India.
Answers: a. Frictional unemploymentb. Cyclical unemploymentc. Structural unemploymentd. Structural unemployment
4. In economics, the definition of "investment" is slightly different than its financial definition. When economists refer to "investment," they are referring to: a. people buying shares of corporate stock. b. business spending devoted to increasing future output. C. money that is saved in a bank account. d. financial assets purchased in the hope of a monetary gain.
B
Which of the following statements is TRUE? a. Cultural differences regarding the work / leisure tradeoff are shown to have no effect on the growth rate of Real GDP per person. b.) One argument that is made against vigorous economic growth is that it can have a negative impact on the environment. c. Country A and country B both have RGDP growth of 3%. If the population of country A is growing at 1.5%, whereas in country B it is growing at 1%, the standard of living is growing faster in country A. d. Faster economic growth could be achieved if we abolish the system of patents and copyrights so that everyone has access to the best ideas. e. Faster economic growth could be achieved if we limit schooling and higher education in order to have more people in the work force producing goods and services.
B
A discouraged worker is: a part of the labor force, but unemployed. b. employed, but discouraged by low pay. C. counted as unemployed, but not counted in the official labor force. d unemployed, but not counted as such because their job search has ceased.
D
An activity that would be directly counted in the GDP accounts would include: a. the value of fixing your own car assuming you don't pay yourself to do it. b. the selling of illegal drugs. c. labor services like babysitting that are paid "under the table". d. the purchase of a ticket to a UD football game from the ticket office. e.) both a) and d) are correct
D
U* equals the natural rate of unemployment. During a recession, the actual unemployment rate is generally: a. falling as the cyclical component of the unemployment rate falls. b. less than U due to lower levels of structural C. overstated because of "discouraged workers". unemployment. d. greater than the natural rate of unemployment (U") due to the presence of cyclical unemployment.
D
When using the GDP as a measure of a country's material standard of living, the international comparisons among different nations must take which of the following into account? a. "Per Capita GDP" is the same concept as the "Real GDP". b. Different countries produce different products so GDP comparisons are invalid for assessing standard of living. c. Population is irrelevant to the creation of GDP, so no population adjustments should be made when making international GDP comparisons. d, Populations of the countries vary, so a better measure of material standard of living is the "Per Capita GDP".
D
Which of the following statements is true? a. When food and energy prices are removed from the inflation statistics because of their volatility, it is done in an effort to get a better measure of what is known as "expected infiation". b. Tina & Bill have an annuity which pays them a fixed amount of $1,800 per month in retirement benefits. They, along with anyone else living off of a fixed income are examples of big winners in the event of high inflation. c. Though deflation lowers the value of assets, it is still beneficial for the macroeconomy overall because prices gradually become lower for consumers. d. Inflation can speed up the rate of spending, which may cause even more inflation. e. None of the above are true.
D
Considering the theory of business cycles, what goods and services tend to most affected by periods of economic contraction which cause a significant slowdown in economic activity? a. sales of non-durable goods that consumers are able to "postpone" b. most affected are consumers non-durable goods regardless of whether purchase of these items can be postponed or not. c. government spending is the GDP item most impacted by economic contraction. d. the sales of all goods and services that make up the GDP are equally affected by economic contractions. e. sales of durable goods and business investment projects that consumers and businesses can "postpone."
E
Which of the following are valid reasons for sticky prices? a. Wage costs are slow to change because it is not customary for employees to instantly offer to work for lower wages & salaries if they are threatened with job loss. b. businesses recognize that for planning purposes, consumers do not prefer fluctuating prices. c. In competitive industries, prices are close to costs and profits are razor thin - price reductions could result in losses for the firms. d. Larger firms may reason that their price cuts will be matched by rivals and so do nothing to enhance their position. e. all of the above are valid reasons for price stickiness in the short run.
E
A single commercial bank in a multibank banking system can lend only an amount equal to its initial preloan _________________. LO3a. total reservesb. excess reservesc. total depositsd. excess deposits
Excess reserves
The three functions of money are: LO1a. liquidity, store of value, and gifting.b. medium of exchange, unit of account, and liquidity.c. liquidity, unit of account, and gifting.d. medium of exchange, unit of account, and store of value.
Medium of exchange, unit of account, and store of value
in 2009, the inflation rate reached negative 0.4 percent while the unemployment rate hit 10 percent. If the target inflation rate was 2 percent and the full-employment rate of unemployment was 5 percent, what value does the Taylor Rule predict for the Fed's target interest rate back then? Would that rate have been possible given the zero lower bound problem? LO4 a. Negative 4.6 percent, not possible. b. Positive 0.4 percent, possible. c. Negative 5.6 percent, not possible. d. Positive 6.4, possible.
Negative 4.6 percent, not possible.
Which of the following would help a government reduce an inflationary output gap? LO1a. Raising taxes.b. Lowering taxes.c. Increasing government spending.d. Decreasing government spending.
Raising taxes; Decreasing government spending
Which of the following Fed actions will increase bank lending? LO3Select one or more answers from the choices shown. a. The Fed raises the discount rate from 5 percent to 6 percent. b. The Fed raises the reserve ratio from 10 percent to 11 percent. c. The Fed lowers the discount rate from 4 percent to 2 percent. d. The Fed sells bonds to commercial banks.
The Fed lowers the discount rate from 4 percent to 2 percent.
Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates? LO4a. The Federal Reserve System.b. The 12 Federal Reserve Banks.c. The Board of Governors of the Federal Reserve System.d. The Federal Open Market Committee (FOMC).
The Federal Open Market Committee
Which of the following will shift the aggregate demand curve to the left? LO2a. The government reduces personal income taxes.b. Interest rates rise.c. The government raises corporate profit taxes.d. There is an economic boom overseas that raises the incomes of foreign households.
The correct answers are: b. Interest rates rise and c. The government raises corporate profit taxes.
Which of the following will shift the aggregate supply curve to the right? LO4a. A new networking technology increases productivity all over the economy.b. The price of oil rises substantially.c. Business taxes fall.d. The government passes a law doubling all manufacturing wages.
The two answers for which aggregate supply would actually shift right are: a. A new networking technology increases productivity all over the economy; c. Business taxes fall.
Most economists agree that the immediate cause of the large majority of cyclical changes in the levels of real output and employment is unexpected changes in ___________________. LO1a. the level of total spendingb. the value of the stock marketc. the value of the trade deficitd. the unemployment rate
a
Suppose that a country has 9 million people working full time. It also has 1 million people who are actively seeking work but are currently unemployed, along with 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate? LO2a. 10 percentb. 15 percentc. 20 percentd. 25 percent
a
Suppose that just by doubling the amount of output that it produces each year, a firm's per-unit production costs fall by 30 percent. This is an example of: LO4a. economies of scale.b. improved resource allocation. c. technological advance.d. the demand factor.
a
Suppose GDP is $5.0 trillion, depreciation is $1 trillion, and gross output (GO) is $17.25 trillion.a. What is the value of all stages of production and distribution except for final sales of goods and services?b. What is the dollar value of economic activity taking place at every stage of production and distribution?
a. 12.25 trillion b. 17.25 trillion
If prices are sticky and the number of dollars of gross investment unexpectedly increases, the _________ curve will shift ____________ . LO1 a. AD; right. b. AD; left. c. AS; right. d. AS; left.
a. AD; right
Identify following arguments about economic growth as being either anti-growth or pro-growth. LO6a. Growth means worker burnout and frantic schedules.b. Rising incomes allow people to buy more education, medical care, and recreation.c. Earth has only finite amounts of natural resources.d. Even the richest countries still have poverty, homelessness, and discrimination.e. Richer countries spend more money protecting the environment.f. Natural resource prices have fallen rather than increased over time.
a. Anti-growth b. Pro-growth c. Anti-growth d. Anti-growth e. Pro-growth f. Pro-growth
Label each of the following descriptions as being either an immediate-short-run aggregate supply curve, a short-run aggregate supply curve, or a long-run aggregate supply curve. LO3a. A vertical line.b. The price level is fixed.c. Output prices are flexible, but input prices are fixed.d. A horizontal line.e. An upsloping curve.f. Output is fixed.
a. Long-run; b. Immediate-short-run; c. Short-run; d. Immediate-short-run; e. Short-run; f. Long-run
Identify each of the following situations as something that either promotes growth or retards growth. LO2a. Increasing corruption allows government officials to steal people's homes.b. A nation introduces patent laws for the first time.c. A court order shuts down all banks permanently.d. A poor country extends free public schooling from 8 years to 12 years.e. A nation adopts a free-trade policy.f. A formerly communist country adopts free markets.
a. Retards growthb. Promotes growthc. Retards growthd. Promotes growthe. Promotes growthf. Promotes growth
At the current price level, producers supply $375 billion of final goods and services while consumers purchase $355 billion of final goods and services. The price level is: LO5a. above equilibrium.b. at equilibrium.c. below equilibrium.d. More information is needed.
above
Suppose that the banking system in Canada has a required reserve ratio of 10 percent while the banking system in the United States has a required reserve ratio of 20 percent. In which country would $100 of initial excess reserves be able to cause a larger total amount of money creation? LO4a. Canadab. United States
canada
If the government decreases expenditures, the AE curve will shift _______ and the AD curve will shift _______. LO7a. down; left.b. down; right.c. up; left.d. up; right.
down; left
If the MPS rises, then the MPC will: LO1a. fall.b. rise.c. stay the same.
fall
If the money supply fell by 10 percent, a monetarist would expect nominal GDP to _________. LO1 a. rise b. fall c. stay the same
fall
True or False: A higher price level increases aggregate expenditures.
false
True or False: Countries that currently have low real GDP per capita are destined to always have lower living standards than countries that currently have high real GDP per capita. LO2
false
True or False: Decreases in AD normally lead to decreases in both output and the price level.
false
True or False: If the price of oil suddenly increases by a large amount, AS will shift left, but the price level will not rise thanks to price inflexibility.
false
True or False: Real GDP is more volatile (variable) than gross investment. LO4
false
true or False: Decreases in AD normally lead to decreases in both output and the price level.
false
Place the phases of the business cycle in order, starting with the highest level of GDP: recession, trough, peak, expansion.
peak, Recession, Trough, Expansion.
During the recession of 2007-2009, the U.S. federal government's tax collections fell from about $2.6 trillion down to about $2.1 trillion while GDP declined by about 4 percent. Does the U.S. tax system appear to have built-in stabilizers? LO2a. Yes.b. No.
yes
Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project? LO3a. Yes.b. No.
yes
Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be a(n) ______________ of memory chips. LO4a. shortage.b. surplus.c. equilibrium quantity.d. none of the above.
A surplus. At the equilibrium price of $50 per chip, the quantity demanded exactly equals the quantity supplied. At higher prices, the quantity supplied increases while the quantity demanded decreases. Thus, at the $55 price, the quantity supplied exceeds the quantity demanded. The result is a surplus of unsold chips because not all of the chips that producers are willing to supply at the $55 price will find buyers at that price. In fact, the equilibrium price of $50 is the only price at which the desires of suppliers with regard to how much they wish to sell are consistent with the desires of buyers with regard to how much they wish to purchase.
True or False: A "change in quantity demanded" is a shift of the entire demand curve to the right or to the left. LO2
Answer: False. Be sure to distinguish properly between a change in quantity demanded and a change in demand. A change in quantity demanded is a movement from one point to another point along a fixed demand curve. A change in demand is a shift of the entire demand curve to the right or to the left. Note that these two types of changes have different causes. A change in quantity demanded (which is a movement along a fixed demand curve) is caused by a change in a good's own price. By contrast, a change in demand occurs because there has been a change in one or more of the determinants of demand (for example, a change in consumer tastes or a change in income).
How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market? That is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts? LO5a. Supply decreases and demand is constant.b. Demand decreases and supply is constant.c. Supply increases and demand is constant.d. Demand increases and supply increases.e. Demand increases and supply is constant.f. Supply increases and demand decreases.g. Demand increases and supply decreases.h. Demand decreases and supply decreases.
Answers: a. Price up; quantity down;b. Price down; quantity down;c. Price down; quantity up;d. Price indeterminate; quantity up;e. Price up; quantity up;f. Price down; quantity indeterminate;g. Price up, quantity indeterminate;h. Price indeterminate and quantity down.
Which of the following items will be included in official U.S. GDP statistics? LO6Select one or more answers from the choices shown.a. Revenue generated by illegal marijuana growers.b. Money spent to clean up a local toxic waste site in Ohio.c. Revenue generated by legal medical marijuana sales in California.d. The dollar value of the annoyance felt by local citizens living near a noisy airport in Georgia.e. Andre paying Ted for a haircut in Chicago.f. Emily and Aliya trading an hour of dance lessons for a haircut in Dallas.
Answers: b. Money spent to clean up a local toxic waste site in Ohioc. Revenue generated by legal medical marijuana sales in Californiae. Andre paying Ted for a haircut in Chicago
bec egard to government spending and taxation, automatic stability is present to some degree because: a. an annually balanced budget will offset the tax and spending changes created by state and local finance and thereby stabilize the economy. B. a rise in GDP will reduce a budget deficit or produce a budget surplus which slows the economy down. A decline in GDP will result in a larger budget deficit or a smaller budget surplus which will speed up the growth in GDP. C. Côngress must enact laws to change the tax structure and expenditure programs to correct upswings and downswings in business activity. d. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.
B
$1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because: a. government spending is more employment-intensive than is either consumption or investment spending. b government spending increases the money supply and a tax reduction does not. O a portion of a tax cut will be saved. d. taxes vary directly with income.
C
11. How does government fund deficit spending? a. Government Treasury to print more money. b. Government instructs the Federal instructs the Reserve to print more money. C The Treasury Department will issue new US Treasury Bonds. d. Government uses past surpluses to fund current deficits.
C
7. If the economy's is at the full-employment GDP level B, this economy has a(n): a. cyclically-adjusted budget surplus but an actual budget in balance. B. cyčlically-adjusted budget deficit. C. cyclically-adjusted budget surplus cyclically-adjusted d. a balanced and an actual budget surplus. budget, but an actual budget surplus.
C
33. The sale of government bonds by the Federal Reserve Banks to commercial banks will: A. increase the money supply and increase aggregate supply. B. decrease the money supply and decrease aggregate supply. C. increase the money supply and increase aggregate demand. D, decrease the money supply and decrease aggregate demand.
D
Which of the following best explains why an increase in Investment spending of $50 billion will increase the RGDP by more than $50 billion? All investment is considered autonomous to the RGDP. An increase in Investment spending of $50 billion will lower the interest rate. Planned inventory decreases when Investment spending increases. d. The increase in Investment will grow the RGDP which will then raise consumption spending. The increase in Investment will result in an unplanned reduction of inventory causing consumption to also increase.
D
Which of the following definitions of money include the use of credit cards? a. M1 b. M2 c. non-M1 M2 (the part of M2 that does not include M1) d none of the above because credit cards are not part of any measure of the money supply.
D
on its books. If the reserve requirement on this bank is 10 percent, this bank: Suppose a bank has $1 million of checkable deposits and actual reserves of $100,000 currently a. can lend out $100,000. b. can lend out $1 million because it has $1 million of excess reserves. C can lend out only 10% of its actual reserves or $10,000. d. technically cannot lend out money because excess reserves for this bank are zero.
D
the country is plagued by high inflation, the Fed might be able to counteract this by: a. increasing the money supply and decrease the Federal Reserve's discount rate. b. expanding the money supply through an open market purchase and allow the interest rate to fall. c. forcing the government deficit to increase. d. contracting the money supply to increase interest rates and reduce aggregate demand e. contracting the money supply through an open market purchase to expand aggregate supply
D
An economy has a consumption schedule showing an MPC of .90 and an equilibrium level of real GDP $2,000. If govemment spending now increases by $100, the new level of real GDP will be: a. )2,100 2,111 c. 2,200 d. 2,900 * 3,000
E
Which of the following are included in this year's GDP? Which are excluded? Explain your answers. LO6a. Interest received on an AT&T corporate bond.b. Social Security payments received by a retired factory worker.c. Unpaid services of a family member who painted the family home.d. Income of a dentist from the dental services she provided.e. A monthly allowance a college student receives from home.f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim.g. The publication and sale of a new college textbook.h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay.i. A $2 billion increase in business inventories.j. The purchase of 100 shares of Alphabet (the parent company of Google) stock.
Included. Income received by the bondholder for the services derived by the corporation for the loan of money.b. Excluded. A transfer payment from taxpayers for which no service is rendered (in this year).c. Excluded. Nonmarket production. d. Included. Payment for a final service. You cannot pass on a tooth extraction!e. Excluded. A private transfer payment; simply a transfer of income from one private individual to another for which no transaction in the market occurs.f. Excluded. The production of the car had already been counted at the time of the initial sale.g. Included. It is a new good produced for final consumption.h. Excluded. The effect of the decline will be counted, but the change in the workweek itself is not the production of a final good or service or a payment for work done.i. Included. The increase in inventories could only occur as a result of increased production.j. Excluded. Merely the transfer of ownership of existing financial assets.
What effect will each of the following have on the demand for small cars such as the Mini-Cooper and Fiat 500? LO2a. Small cars become more fashionable.b. The price of large cars rises (with the price of small cars remaining the same).c. Income declines and small cars are an inferior good.d. Consumers anticipate that the price of small cars will greatly come down in the near future.e. The price of gasoline substantially drops.
a. Demand increases.b. Demand increases.c. Demand increases.d. Demand decreasese. Demand is ambiguous. Since autos and gas are complements, one could argue that the decrease in gas prices would stimulate demand for all cars, including small ones. However, one could also argue that small cars are attractive to consumers because of fuel efficiency, and that a decrease in gas prices effectively reduces the price of the "gas guzzling" substitutes. That would encourage consumers to switch from smaller to larger cars (SUVs), and demand for small automobiles would fall. This presents a good illustration of the complexity of many of these changes.
What effect will each of the following have on the supply of auto tires? LO3a. A technological advance in the methods of producing tires. b. A decline in the number of firms in the tire industry. c. An increase in the price of rubber used in the production of tires. d. The expectation that the equilibrium price of auto tires will be lower in the future than currently. e. A decline in the price of the large tires used for semi-trucks and earth-hauling rigs with no change in the price of auto tires). f. The levying of a per-unit tax on each auto tire sold.g. The granting of a 50-cent-per-unit subsidy for each auto tire produced.
a. Supply will increase because the technological advance allows the tire manufacturers to produce more tires using the same amount of inputs.b. Supply will decrease because there are less firms in the industry.c. Supply will decrease because the increase in the price of rubber results in an increase in production costs. Thus, each firm will need to charge a higher price at each level of output (or supply less at each price).d. Supply will increase because the expectation that the equilibrium price of auto tires will be lower in the future causes firms to sell their inventories today while the price is still high.e. Supply will increase because the decline in the price of large tires used for semi-trucks and earth-hauling rigs (with no change in the price of auto tires) will cause firms to reduce production of large tires (now commanding a lower price) and produce more auto tires. These two goods are substitutes in production. f. Supply will decrease because per-unit tax on each auto tire sold increases the cost of production since the tire manufacturers must now pay for input costs plus the per unit tax.g. Supply will increase because the 50-cent-per-unit subsidy decreases the cost of production. The tire manufacturers receive the subsidy, which they can subtract from their input costs.
Tina walks into Ted's sporting goods store and buys a punching bag for $100. That $100 payment counts as ________________ for Tina and _______________ for Ted. a. income; expenditure.b. value added; multiple Counting.c. expenditure; income.d. rents; profits.
c. Expenditure; Income.
Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a leaf blower that is priced at $200. With the 10 percent sales tax, his total comes to $220. How much of the $220 paid by Ralph will be counted in the national income and product accounts as private income (employee compensation, rents, interest, proprietor's income, and corporate profits)?
200
An increase in AD (Aggregate Demand) will cause: a PL 1 and RGDP 1 b. PL i and RGDP c. PL 1 and RGDP d. PL Į and RGDP
A
In the NW corner of the bull's eye graph of inflation and unemployment, the signal for monetary policy is: a. clear, and it calls for restrictive monetary policy. b. unclear, but leans toward restrictive monetary policy. c. clear, and it calls for expansionary monetary policy. đ. unclear, so expansionary monetary policy must be employed according to the mathematical models. e. unclear, and restrictive, neutral, or expansionary monetary policy can be used depending on exact conditions.
A
The "crowding-out effect" is best described by: a. the decrease in private spending (C & I) that results because government borrowing increases the interest rate. B. the decrease in government spending due to the effect that private spending has on the interest rate. c. the increase in privatespending (C & I) that results because govemment borrowing increases Aggregate Demand. d. the feeling one gets when they step out of a crowded elevator.
A
The economy has found an equilibrium at potential GDP. Resources are fully-employed and there is no cyclical unemployment, but frictional U and structural U remain. If the aggregate demand curve (AD) increases, the effect will mostly be on the. ,causing and only a small or minimal impact on price level; demand-pull inflation; RGDP b. RGDP; demand-pull inflation; price level C. price level; cost-push inflation; RGDP d. RGDP; cost-push inflation; price level
A
The economy's aggregate spending multiplier is: * 1/(1 - MPC) 1/ MPC MPS / (1- MPS) 1/(1 + MPS) e. none of the above
A
$1,000 Suppose Suppose firms firms sell sell more more than than they produce produce and and begin begin to to experience experience decreases decreases in in the the level level of of inventorie inventories. IH this occurs, it would be reasonable to expect that: the economy is at equilibrium D, employment will increase and economic output (RGDP) will eventually increase v * employment will decrease and economic output (RGDP) will eventually decrease * prices will decrease since firms will resort to ocutting stimulate more sales.
B
. 33. In which case is inflation a more likely outcome? a. when the economy has a lot of idle capacity and high unemployment 6 when the economy is at or near potential RGDP and full-employment C. inflation can be quite likely under all scenarios because the usual bout of inflation is the cost-push variety. S. neither a nor b because inflation and unemployment are not related
B
12. At the $400 level of GDP, saving is equal to: a. $50 (b.) $100 C. $200 d. $300 e. $400
B
19. To say that an asset is liquid implies: a. that the asset takes a liquid form, like oil. b, that the assets can quickly and cheaply be converted to a means of payment. C. nothing because all assets are equally legitimate means of payment. d. that we are only considering US currency and no other asset categories.
B
30. If the federal funds rate is below its target rate, the appropriate monetary policy action would be: a. an open market purchase b. an open market sale C, a decrease in the discount rate d, a new issue by the Fed's term auction facility
B
31. Increases in worker productivity will: shift aggregate demand to the right. b) increase aggregate supply. C. shift aggregate supply to the left. decrease aggregate demand.
B
31. It is costly to hold currency (cash outside the banking system) because: a. deflation may reduce its purchasing power. b. in doing so one sacrifices interest income because currency pays no interest. c. bond prices are highly variable. d. the rate at which money is spent may decline.
B
8. The economy moves to GDP level A which is below full employment. Government's response is to lower taxes to line T2. If the economy stays at output level A, the actual budget will be a: full-employment. a. surplus. b. deficit. C. balanced budget. d. the answer is impossible to determine.
B
The Fed conducts an open market sale. The ultimate effect on the equilibrium interest rate (federal funds rate) is that it will: a. decrease b, increase C. stay the same d. cannot say based on information provided
B
The body most directly responsible for monetary policy decisions in the US is: a. the Office of the President of the United states of America B the Federal Reserve's Open Market Committee c. the US Treasury d. The Congress of the United States of America e the Federal Reserve System
B
The crowding-out effect is: a. strongest when the economy is in a deep recession. B. strongest when the economy is at full-employment. C. weakest when there is demand-pull inflation. D. equally strong, regardless of the state of the macroeconomy.
B
igmpoet The short run aggregate expenditures macroeconomic model suggests that even when the economy is in equilibrium it can: have a negative interest rate. b) be at less than full employment. never have actual real GDP exceed potential real GDP. d. have total spending on final goods and services not equal to the total income generated by the sale of that output (total spending does not equal total income).
B
12. To say that "the U.S. public debt is also a public credit" is to say that: a. only interest payments on the public (or national) debt are an economic burden. b. official figures understate the size of the public (or national) debt. C. the bulk of the national debt is owned by U.S. citizens and institutions, so it is a national credit as well as being a national debt. D. the public debt is equal to the land and buildings assets owned by the Federal government.
C
15. Of the following concerns regarding the $29 trillion public debt, which do the textbook authors consider the most serious? A. Debt can be paid off by issuing new debt to additional borrowers. B. Debt grows as GDP grows. C. Interest on the debt will become a larger segment of public spending especially if interest rates increase. d. The Debt-to-GDP ratio has been falling in recent years.
C
17. A tax multiplier is smaller than the general spending multiplier. If the MPC = .8, what change in taxes would be is necessary to increase GDP from its current level of $310 to the full-employment level of $350? increase of $8 billion b increase of $40 billion © decrease of $10 billion d. decrease of $40 billion e. impossible to determine
C
2. If you know that an increase in a household's disposable income from $40,000 S50.000 le consumption increase from $30,000 to $38,000 you can conclude that the: 10 consumption schedule has a slope of .26667 marginal propensity to consume is .2 marginal propensity to consume is .8 marginal propensity to save is 1.2 marginal propensity to save is .8
C
23. The downward slope of the aggregate demand curve indicates that: b the demand for most a a higher price will be necessary to sell higher quantities of goods goods is unrelated to the economy's price level the lower the price level the larger real GDP can be because a lower price level increases C. la. and X. a higher prices levels raise market demand for all goods
C
27. The commercial banking system creates "deposit money" when it: a. accepts cash deposits from the public b) purchases US Treasury securities (bonds) from the Federal Reserve c. creates demand deposit accounts for depositors and lends its excess reserves d, raises its prime rate in accordance with an increase in the federal funds rate target.
C
34. Using the AD/ AS model for analysis, the price of a key resource like petroleum oil? which of the following is likely to result from an unanticipated increase in a a decrease in the inflation rate O an an increase increase in in the the price level - unemployment rate d. an increase in the natural rate of unemployment a decrease in aggregate demand
C
9. If the tax line is T2, the economy's cyclically-adjusted budget will be a: a. deficit b. surplus C. balanced budget d. the answer is impossible to determine
C
In the context of the AD-AS model, which of the following sequences is most likely in the short run if the Fed lowers the interest rate? a. G^, AD^, RGDP^, PL down b. Ig^. AD^, RGDP down, U down C. lg^. AD^, RGDP down, PL^, U down d. T down, AD down, RGDP down, U^, PL down e. C down, AD down, RGDP ^, U down, PL down
C
Refer to the above diagram for the Federal funds market. If the Fed wants the Federal funds rate to falt from Ii to l2, it can use open market operations to: a. decrease the demand for Federal funds. b. increase the supply of Federal funds. c. decrease the supply of Federal funds. d. increase commercial bank reserves.
C
Regarding the time horizons indicated as the "immediate" run, the short run, and the long run, the short run means: a. total inflexibility in all prices. complete flexibility in all prices. © flexible output prices, but inflexible input prices. d. flexible input prices, but inflexible output prices.
C
The implication of the "liquidity trap" is that: a. fiscal policy always works when applied. d. that monetary policy will be effective if people hold more cash and banks hold all of their more money as cash, and banks can choose to hold their excess reserves. © open market purchases may not work to spur GDP because the public can choose to hold b. open market sales never raise the interest rate and therefor never contract the economy. excess reserves.
C
following best describes Regarding the downward-sloped the "interest rate effect"? (PI = Price Index Aggregate Demand (AD) curve, which of the inom = nominal interest rate) PL Į inom which discourages consumers encourages more government C PL 1 inom 1 which discourages PL Į inom 1 which encourages firms to invest firms from investing PL 1 inom I which from buying on credit and lowers RGDP. spending and increases RGDP. in plant and equipment and lowers RGDP. in plant and equipment causing a reduction in AS.
C
the supply and price of new homes? Plywood is used in the construction of new homes. If the cost of plywood increases, what happens to b. supply increases a. supply falls and price falls and price fallsX © supply falls and price increases V d. supply and price both increase e supply increases, but there is insufficient information to determine the effect on price
C
Refer to the above diagram that indicates the full employment output as Qf. If the economy's current aggregate demand curve is AD0 the appropriate short run fiscal policy would be to A. reduce gov expenditures and taxes by equal amount B. reduce gov expenditures and/or increase taxes C. increase gov expenditures and/or reduce taxes D. reduce unemployment compensation benefits
C. increase gov expenditures and/or reduce taxes
Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward a: a budget surplus that created an equality of tax receipts and government expenditures. b, budget surplus so that tax receipts exceeded government expenditures. c. budget deficit that resulted in tax receipts exceeding government expenditures. d. Budget deficit by allowing government expenditures to exceed tax receipts. e. a balanced budget because unbalanced budgets screw up the economy.
D
Claims that orange oduced because of unseasonably low temperatures juice is high in calcium has increased the demand for it. Simultaneously supekat these in the citrus growing regions. How would change the equilibrium in the orange juice market? a. Pt; Q1/ b. P?; Q iX PI; Q1 Pt: Q ? е. PI: Q?
D
The $400 level of GDP is: a. that output at which saving is zero. b. too high because consumption exceeds investment. c. unstable because aggregate expenditures exceed GDP. d. unstable because aggregate expenditures are less than GDP.
D
22. Today, the physical money we hold (paper bills called Federal Reserve Notes) can only be redeemed for: a. gold b. silver c. Treasury Bonds d. demand deposits e, other Federal Reserve Notes
E
36. A decrease in AD will cause: and an increase unemployment (U) (PL) and a decrease in U an increase e decline in the A. an increase in RGDP b. a decline in the price level a decline in the PL and an increase in RGDP in the PL and an increase in RGDP PL and an increase in U
E
An increase in AS (Aggregate Supply) will cause: unemployment (U) level (PL) and an increase in U 6. an increase in RGDP and an increase b. a decline in the price C. an increase in the PL and an increase in RGDP in the PL and a decrease in RGDP a decrease a decline in the PL and decrease U
E
In the SW corner of the bull's eye graph of inflation and unemployment, the signal for monetary policy is: a. clear, and it calls for restrictive monetary policy. b. unclear, but leans toward restrictive monetary policy. c. clear, and it calls for expansionary monetary policy. d. unclear, so expansionary monetary policy must be employed according to the mathematical models. e unclear, and restrictive, neutral, or expansionary monetary policy can be used depending on exact conditions.
E
Initially, the banking system holds $1,000,000 in demand deposit accounts and in accordance with its reserve requirement of 10%, it holds $100,000 of required reserves and $0 excess reserves. If the Fed now lowers the reserve requirement to 8%, by how much can the money supply potentially increase? a. $20,000 b. $80,000 C $100,000 d. $200,000 e. $250,000
E
Of the following choices, which is most likely to increase the level of investment spending? a a decrease in income (RGDP) E an increase in the rate of interest a decrease in forecasted sales * an expectation that consumer spending will decline e. an expectation that future sales and profits will grow
E
The foreign purchases effect tells us that an increase in the price level will: a. decrease net exports because imports will fall. b. increase net exports because exports will increase. c. increase net exports because domestic consumption will fall. decrease net exports causing a decrease in aggregate supply. decrease net exports because exports will fall.
E
True or False. The term economic investment includes purchasing stocks, bonds, and real estate.
False
A budget surplus means __________ and will ________ the economy under normal circumstances. a. G > T; contract b. G > T; expand c. G < T; contract d. G , T; expand
c. G < T; contract
Suppose that this year's nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level 5 years ago. Using that index, we find that this year's real GDP is $15 trillion. Given those numbers, we can conclude that the current value of the index is: LO5a. higher than 100.b. lower than 100.c. still 100.
higher than 100
If an economy has fully flexible prices and demand unexpectedly increases, you would expect that the economy's real GDP would tend to: LO4a. increase.b. decrease.c. remain the same.
remain the same
