Macro final

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____. a. $12,000; $2,000 b. $30,000; $5,000 c. $25,000; $3,000 d. $15,000; $4,000

a. $12,000; $2,000

When a perpetual bond with a face value of $1,000 is issued, general interest rates are 3%, so the annual interest payment is _____. After the bond is issued, market interest rates rise to 4%, which forces the price of the bond to _____ to _____. a. $30; fall; $750 b. $3; fall; $75 c. $3; rise; $750 d. $30; rise; $750

a. $30; fall; $750

Which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation? a. The CPI does not deal with producer prices. b. The CPI assumes that people do not substitute goods. c. The CPI does not account for quality changes. d. The CPI does not include new products.

a. The CPI does not deal with producer prices.

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession. a. True b. False

a. True

To convert a nominal value to a real value in dollar terms, the base year index must be set at 100. a. True b. False

a. True

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag. a. information b. implementation c. decision d. recognition

a. information

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e (SRAS0, AD0). Assume that the government uses expansionary fiscal policy. The movement from point a (SRAS0, AD1) to point b (SRAS1, AD 1) is due to a. workers and suppliers adjusting their expectations to higher price levels. b. decreased consumer spending brought about by increased government spending and/or lower taxes. c. workers and suppliers adjusting their expectations to lower price levels. d. increased consumer spending brought about by increased government spending and/or lower taxes.

a. workers and suppliers adjusting their expectations to higher price levels.

If foreign countries abandoned the use of the dollar as their only form of legal currency, the U.S. money multiplier would likely increase. a. False b. True

b. True

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing: a. deflation b. disinflation c. a drop in its price level d. hyperinflation

b. disinflation

Bonds are considered to be _____ than stocks because _____. a. less risky; bondholders earn dividends and stockholders do not b. less risky; bondholders are less affected by a firm's bankruptcy c. riskier; stockholders are less affected by a firm's bankruptcy d. riskier; stockholders earn dividends and bondholders do not

b. less risky; bondholders are less affected by a firm's bankruptcy

_____ unemployment is the result of changes in the business cycle. a. Seasonal b. Structural c. Cyclical d. Frictional

c. Cyclical

Cost-push inflation occurs because of a shift to the a. left of the aggregate demand curve. b. right of the aggregate demand curve. c. right of the short-run aggregate supply curve. d. left of the short-run aggregate supply curve.

d. left of the short-run aggregate supply curve.

If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield? a. 5.26% b. 9.5% c. 1.05% d. 95%

a. 5.26%

Compared with stocks, bonds tend to reward investors with a higher average return on investment over the long run. a. False b. True

a. False

(Figure: Aggregate Demand and Supply) The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which statement is TRUE? a. The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels. b. The movement from point e to point a is due to decreased consumer spending brought about by increased government spending and/or lower taxes. c. The movement from point e to point a is due to workers and suppliers adjusting their expectations to lower price levels. d. The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes.

a. The movement from point a to point b is due to workers and suppliers adjusting their expectations to higher price levels.

The demand for loanable funds is downward sloping because a. as interest rates fall, businesses find more projects to be profitable and thus want to borrow more. b. higher interest rates are equivalent to higher returns on business projects. c. higher interest rates encourage firms to borrow more. d. as interest rates fall, the value of the money supply drops.

a. as interest rates fall, businesses find more projects to be profitable and thus want to borrow more.

If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____. a. 25; less than 25 b. 4; equal to or less than 4 c. 25; greater than 25 d. 250; greater than 250

b. 4; equal to or less than 4

What is a difference between the typical structure of a retirement savings account (401(k)) and an individual retirement arrangement (IRA)? a. IRA contributions are typically made with pretax income while 401(k) contributions are made with post tax income. b. Employers often match 401(k) contributions, but they do not match IRA contributions. c. Taxes are due on withdrawals from an IRA but not on withdrawals from a 401(k) account. d. IRAs typically earn interest, but 401(k) accounts typically earn dividends.

b. Employers often match 401(k) contributions, but they do not match IRA contributions.

Which list represents monetary policy actions that are consistent with one another? a. buy government bonds, raise reserve requirements, raise the discount rate b. sell government bonds, raise reserve requirements, lower the discount rate c. sell government bonds, lower reserve requirements, raise the discount rate d. buy government bonds, lower reserve requirements, lower the discount rate

b. sell government bonds, raise reserve requirements, lower the discount rate

According to the table, what is the labor force of this economy? population: 500 number employed: 300 number unemployed: 50 a. 300 b. 50 c. 350 d. 500

c. 350

A bond has a face value of $1,000 and an annual interest payment of $44. What is its coupon rate, and what is its yield if it is sold for $1,100 in the secondary market? a. 44% and 4.4%, respectively b. 4.4% and 10%, respectively c. 4.4% and 4.0%, respectively d. 4.0% and 4.4%, respectively

c. 4.4% and 4.0%, respectively

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for this bank is _____, and it _____ meeting its reserve requirement. a. 0.002%; is not b. 186%; is not c. 53.76%; is d. 20%; is

c. 53.76%; is

An economy is expected to produce higher profits for business owners at the same time that the country's stock market surges. What changes can be expected in the country's market for loanable funds? a. a decrease in demand and an increase in supply b. increases in both demand and supply c. an increase in demand and a decrease in supply d. decreases in both demand and supply

c. an increase in demand and a decrease in supply

The U.S. economy is currently experiencing high unemployment and low inflation. To lessen the unemployment problem, the Federal Reserve could a. sell bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. b. raise the reserve requirement, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. c. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. d. lower the discount rate, thereby enabling banks to increase liquidity, lend more money, decrease the money supply, stimulate spending, and create jobs.

c. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is a. directly increased by $4 million and has the potential to be increased by another $8 million. b. not directly affected but has the potential to be increased by a total of $12 million. c. directly increased by $4 million and has the potential to be increased by another $12 million. d. directly reduced by $4 million and has the potential to be reduced by another $12 million.

c. directly increased by $4 million and has the potential to be increased by another $12 million.

Under which condition would the Fed be most likely to engage in its role as the lender of last resort? a. when record amounts of student loans are paid back before interest rates rise b. when a stock market crash causes people to sell their stocks and purchase bank CDs instead c. if a lack of confidence in the financial system causes savers to withdraw money from banks d. when throngs of borrowers apply for loans as the housing market picks up

c. if a lack of confidence in the financial system causes savers to withdraw money from banks

Which of these is NOT a reason the aggregate demand curve is negatively sloped? a. wealth effect b. export effect c. income effect d. interest rate effect

c. income effect

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment? a. increase spending by $10 billion b. increase spending by $25 billion c. reduce spending by $25 billion d. reduce spending by $100 billion

c. reduce spending by $25 billion

Which statement is NOT correct? a. Discouraged workers are considered part of the leisure class and not part of the labor force. b. Discouraged workers have stopped actively seeking work. c. Discouraged workers are not classified as unemployed. d. Discouraged workers are considered underemployed.

d. Discouraged workers are considered underemployed.

Which of these would likely cause the market for loanable funds to change as shown in the following figure? (graph showing a decrease in supply of loanable funds) a. increased incentives for individuals to save b. improved business expectations about future profits c. increased regulations placed on businesses d. a decrease in average incomes

d. a decrease in average incomes

Bond prices and their yields are _____ because the bond's face value and _____are fixed, forcing its _____ to change in response to changing market conditions. a. positively related; coupon payment; sales price b. positively related; sales price; coupon payment c. negatively related; sales price; coupon payment d. negatively related; coupon payment; sales price

d. negatively related; coupon payment; sales price