Macro Final Exam

which action by the federal reserve is NOT considered to be one of its normal monetary policy tools

buying mortgage-backed securities

which of these is NOT a benefit of countries adopting the euro

it becomes easier to address regional differences in economic performance

if the reserve requirement changes from 10% to 15%, what happens to the money multiplier?

it goes down

an important reason why the federal reserve would not want to keep interest rates at 0% forever is that

it limits the ability of the fed to use expansionary monetary policy when the next recession occurs

according to the taylor rule, what will the federal reserve do if output falls below its potential GDP

it will lower its target

the main feature of fractional reserve banking is that banks

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

what were the primary causes of the 2007-2009 US financial crisis

low interest rates and easy lending standards

a recent decision regarding the Federal Reserve's impending interest rate increase is an example of a _____ topic. on the other hand, a debate on the impact of the arrival of Uber on local taxi businesses in an example of a _____ topic.

macroeconomic; microeconomic

in general terms, which item is and example of an inferior good

a city bus

money

anything that is accepted in exchanged for other goods and services or for payment of debt

production levels to the left of the production possibilities frontier are

attainable but inefficient

in June 2013, the bank of Japan announced that it was continuing its easy money policy through open market operations. the bank must have decided to continue to sell securities

false

the factors that would shift the savings and consumption schedule include

household debt, wealth, taxes NOT taste and preferences

when quantity demanded in a market equals quantity supplied, then the

market is in equilibrium

consumer surplus is the difference between the

maximum price the buyer is willing to pay and the market price

money is considered a _____ because it is generally accepted as payment for goods and services

medium of exchange

another term for M2 is

near money

the financial problems facing several eurozone countries have led to all of these except

nearly half of eurozone countries defaulting on their debt

automatic stabilizers are designed so that as income falls

spending does not fall as much as income

which topic is a macroeconomic topic

the study of the business cycle

aggregate expenditures are equal to

the total consumption plus investments plus government expenditures plus exports minus imports

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 the bank's reserve ratio

25%

if the money multiplier is 4, what is the reserve requirement

25%

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

if disposable income is $3,000 and savings is $1,200, how much is consumption

$1,800

if the growth rate in an economy is 2%, its GDP will double in about

35 years

if consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is

0.25

if income rises from $10,000 to $20,000 and consumption increases from $9,000 to $16,000, then the marginal propensity to save is

0.25

there are _____ regional federal reserve banks; the only regional bank president who is a permanent member of the federal open market committee is based in _____

12; New York

if MPC = 0.6, what is the spending multiplier

2.5

three basic economic questions that each society must answer

1. what goods and services will be produced 2. how will the goods and services be produced 3. who will receive the goods and services

if the labor force is 20 million and the total employed is 18 million, what is the unemployment rate

10%

assume the demand schedule for smart phones is downward sloping. if the price of smart phones increases from $200 to $600

a decrease in quantity demanded of smart phones will occur

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 so nothing is advocating

a functional finance approach to federal budgeting

what would cause the demand for loanable funds curve to shift leftward

an end to a program that provides investment tax credits

which factor would shift the demand curve for gasoline to the right

an increase in national income

how is money created out of thin air by banks

banks loan out money that is then redeposited in to other banks, creating a cycle

when the federal reserve prints money what does it do with it

buys bonds to reduce the interest rate

what are examples of financial intermediaries in the market for loanable funds

credit unions, mutual funds, insurance companies

*according to the table, in which country did the capital-to-labor ratio rise by the most from year one to year two

econia

the twin goals of monetary policy are

economic growth and stable prices

kim recently purchased a perpetual bond for $1,000. the bond pays $50 in interest per year. if market interest rates rise to 7% after her purchase, the price of the bond

falls to $714

economist who favor a _____ approach to the federal budget believe that the first priority of policymakers should be to keep the economy at full employment with stable prices

functional finance

which if the following actions would reduce frictional unemployment

holding job fairs

the federal government can finance its debts by all of the following measures

increase in money supply, sale of government bonds, sale of government assets NOT increase in the federal funds rate

if the federal reserve increases its purchase of bonds, then the money supply will _____ and aggregate demand will ______

increase; decrease

an expansionary fiscal policy can result in

inflation and higher GDP

economists refer to the payment to capital as

interest

examples of teaser rates

interest rate for a mortgage on an unaffordable home, an interest rate on a car loan for a luxury automobile, an interest rate on loans of more than 30 years

the demand curve for laonable funds represents _____ and is _____

investors; downward sloping

the medium of exchange function of money allows an economy to void the problem of

lack of double coincidence of wants

economists refer to rent as a payment to

land

if the economy is currently operating below long-run output, what should the Federal reserve do?

lower interest rates from their current level

if one person consumes a public good

others cannot be excluded from enjoying it

in a pure market economy, the government's primary roles include

protecting property rights, enforcing contracts between private parties, providing public goods like national defense NOT reallocating resources across the country

_____ is the total accumulation of past budget deficits less surpluses

public debt

holding other expenditures constant, if imports fall by $20 billion and exports fall by $10 billion, then GDP

rises by $10 billion

if interest rates rise, the burden of a nation's public debt _____ and the probability of a default ______

rises; rises

if the federal reserve wishes to raise the interest rate, what does it need to do

sell bonds to banks while reducing the money supply

the largest category of federal government spending in 2015 was

social security

which component of GDP includes inventory changes

investment

generally, which group of people has the highest marginal propensity to consume

low-income people

the price of feed corn would be included in the

producer price index

a monetary rule is especially appropriate in the case of a major economic shock

false

if there is a general rise in fear of the financial system, then the potential money multiplier will fall

false

jennifer received news that she is getting a 5%raise. however, the bureau of labor statistics just reported that prices are risin gby 7%. based in the given information, which of the following is true?

jennifer is losing purchasing power by 2%

the costs of cyclical unemployment can be minimized by

keeping the economy on a steady, low-inflationary growth path

according to Malthus, what part of the economy might increase at a rate such that the data would show an increase from 1.000 to 2.000 to 4,000 to 16,000

population

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

producer surplus is greater than consumer surplus

what is true about the fed's board of governors

seven members, serve one 14 year term, located in DC NOT elected by the voters in the region they serve

the largest source of federal government revenues is

social security taxes

which of the following did classical economists believe would happen if the economy experienced a downturn

the economy would self-correct

when the federal reserve pursues expansionary monetary policy, which of these happens

AD shifts right

trade is

a driver of economic growth

which event would shift the supply curve for pipes to the left

an increase in taxes on pipes

prices typically contain useful information for

both buyers and sellers

which is a liability for a bank

customer's checking account balances

automatic stabilizers are most associated with the _____ balanced budget

cyclically

which of these would be the lowest interest rate

federal funds rate

the federal reserve will increase the money supply by a set percentage every year as a level consistent with long-term price stability and economic growth if it is following

friedman's monetary rule

producer surplus is defined as the

gap between the supply curve and the market price

when the economy is underperforming and policymakers pursue expansionary fiscal policy, they express a willingness to trade off _____ output for a _____ price level

higher; higher

willingness to pay is the

highest value that a consumer believes a good or service is worth

the federal funds rate is the interest rate that banks charge other banks for _____ loans

overnight

about _____ of US currency is held outside of the US

two-thirds

if the bureau of economic analysis reports that the annualized US 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%

suppose in 2010 the cost of purchasing a basket of goods was $100. that same basket cost is $150 in 2011. if 2010 is the base year, the consumer price index for 2011 is

150

suppose banks hold 20% of money in reserves. what is the money multiplier?

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 inflation gap is 1%, the target interest rate is

6%

about how large is the U.S. public debt as a fraction of GDP

70%

prices from about _____ goods and services are collected each month by the Bureau of Labor Statistics data collectors to be used in calculating the consumer price index

80,000

AE = ______

C + I + G + (X-M)

Jill plants flowers in her yard to supply a local florist. her neighbor is enjoying the flowers, therefore

Jill is creating an external benefit for her neighbor

checking accounts are counted as part of

M1 and M2

which nation was NOT part of the eurozone when it was introduced in 1999

Slovenia

historical evidence shows that

a country's degree of freedom is related to the level of economic growth

the main idea behind supply-side economics is that

a decrease in marginal income tax rates would stimulate economic growth

the producer price index contains

aggregate measures of price changes, organized by a stage of processing

the main role of a market is to

allocate resources

one of the important reasons why many economists prefer monetary policy that uses discretion instead of rules is that it

allows monetary policy to be used more aggressively when major economic shocks occur

what does the paradox of thrift say

an economy that saves too much can end up with lower total savings

personal consumption expenditures

can be found by subtracting saving from disposable income

which type of economist would advocate little to no role for the central bank

classical economists

rank the smallest to largest components of M1

coins, banknotes, demand deposits

what is included in gross private domestic investment

construction of residential housing, new equipment purchased by businesses, an increase in business inventories NOT purchases of common stock by investors

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

consumer surplus is greater than producer surplus

in a capitalist economy, the answer to the question "what should be produced?" is determined by

consumers' demand for specific goods and services

according to the crowding-out effect, if the government sells bonds to finance spending, _____ can eventually fall

consumption and investment

the average propensity to consume is

equal to consumption divided by income

if the economy is in a recession, the federal reserve would most likely pursue _____ which causes interest rates to _____

expansionary monetary policy; fall

to have long-term economic growth, the production function suggests

increasing the availability of technology, capital, and labor

which of the following measures is an example of expansionary fiscal policy

increasing unemployment compensation

one reasonably objective measure of intangible infrastructures is the

index of economic freedom

a country operating inside of its production possibilities frontier is operating

inefficiently but in an area that can be attained

when the economy is overheating and policymakers pursue contractionary fiscal policy, they express a willingness to trade off _____ output for a _____ price level

lower; lower

a market exists when

people exchange money for goods and services

financial institutions

reduce information costs, reduce transaction costs, and diversify assets

investment spending

tends to be volatile

because of an economic downturn, 20% of the labor force is unemployed. as the economy picks up and these workers begin to return to work, long-run economic growth can occur.

true

if the reserve requirement is 20% the money multiplier is 5

true

paper money constitutes 90% of currency

true

the crowding out effect can be mitigated if the funds from deficit spending are used for public investment

true

when a demand shock occurs in the short run, monetary policy may focus on either output or income , since its effect is the same as focusing on price stability

true

increasing the reserve requirement would decrease the money supply decreasing the discount rate would decrease the money supply buying government bonds would increase the money supply

true false true

M1 is the narrowest measure of the money supply near monies are as liquid as cash coins form only a small part of M1 M2 is about 4 times the size of M1

true false true true

as interest rates fall, the burden of the federal deficit is reduced as financial markets become more global in scale, it has reduced the burden of the federal deficit

true; true

microeconomics is concerned with issues such as

which job to take

when consumer confidence falls in an economy, _____ increase in an economy and this amount is _____ by the multiplier

withdrawals; enhanced

examples of financial intermediaries

citibank, schwab mutual funds, hartford insurance

under what condition would the fed be most likely to engage in its role as the lender of last resort

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

what is the most important function of the federal reserve

open market operations

according to classical economists and the quantity theory of money, any change in the money supply will affect prices

true

an increase in government spending would increase aggregate demand

true

a market demand curve

is the horizontal summation of individual demands

if your income is $35,000 and the average propensity to save is 0.46, what is consumption

$18,900

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 the consumer surplus?

$180

if a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after two years

$2,205

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 the producer surplus?

$269

if the marginal propensity to save is 0.2 and income rises by $5,000, how much of this $5,000 will be consumed

$4,000

we are most likely to see a recession if interest rates on long-term bonds are _____ and interest rates on short-term bonds are _____

2%; 4%

*when disposible income increases from $1,000 to $1,200, what is the value of the marginal propensity to save

0.5

if disposable income is $250 and savings is $50,how much is the average propensity to consume

0.8

the economy is least likely to be heading into a recession when the national activity index equals

0.81

the taylor rule is 2+inflation rate+1/2 output gap+1/2 inflation gap. if inflation is 1%, output gap is -3%, and the inflation gap is -1%, the target interest rate is

1%

there are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. what is Marketstan's unemployment rate?

10%

suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. using 1996 as the base year, the consumer price index for today is

121.4

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

according to the equation of exchange, if PxQ = 7 trillion and the money supply is 2 trillion, what is the velocity of money

3.5

which economist promoted the idea that reducing tax rates can increase tax revenue

Arthur Laffer

which headline would be LEAST likely to be studied in macroeconomics

GM expands car sales in China

what act created the central bank of the US as we know it today

The Federal Reserve Act of 1913

the study of economics

is about people making decisions regarding their use of scarce resources

suppose in 2009, country X had a tax revenue 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

which is NOT a leakage in money creation

depositing a large jar of coins at the bank

jody purchases a stock from her employer, acme corporation. this is an example of _____ finance.

direct

workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as

discouraged workers

_____ refers to the way an economy allocates goods and services to consumers

distribution

capital includes all of these EXCEPT

dollar bills in a bank vault

public debt held by foreigners is known as _____ debt

externally held

money does not lose value when inflation occurs

fales

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

near money includes individual stocks and bonds

false

in a market economy, product prices do NOT help to determine how

governments allocate their resources

suppose there is news of rising unemployment. what is a likely scenario

households save in anticipation of bad times, the supply of loanable funds rises, interest rates fall, and firms take advantage of of lower interest rates and make more investments, all of which stimulates the economy

economists understand that people respond to

incentives

a shift in the demand curve is caused by

income, expectations, prices of related goods

for your purchasing power to stay the same, your wages must

increase at the same rate as inflation

property rights consist of _____ goods that _____ be easily measured

intangible; cannot

the reward for saving is called _____, and this variable is placed on the _____ axis of the loanable funds market graph

interest; vertical

a _____ is the most difficult for the federal reserve to address because it causes both inflation and unemployment to rise

negative supply shock

the conversion formula for the current dollar value to the constant dollar value is

nominal x (base year index / current year index)

which situation indicates that total output in a country has grown the most when the starting output is the same in all situations

output per worker grows by 4% while the labor force grows by 12%

_____ are almost 70% of GDP, while _____ are about 17% of GDP

personal consumption expenditures; government expenditures

when main street bank buys new automatic teller machines, the quantity of _____ in the economy increases

physical capital

if the federal reserve chair is considered a "dove" this means that she

places greater emphasis on promoting output and curbing inflation

macroeconomics deals with

recessions, inflation, job creation rates

in order for the federal reserve to raise the interest rates, it needs to

reduce the money supply

what is an example of contractionary fiscal policy

reducing military spending

when a financial institution provides a standardized financial product such as a mortgage, it is

reducing transaction costs

which functions are performed by the federal reserve banks and their branches

regulating and supervising member banks, distributing coins and currency

when an economy is in a recession, welfare and unemployment compensation payments _____ and tax revenues _____.

rise; decline

the business cycle refers to

short-run fluctuations in macroeconomic activity

which question would be considered a normative question

should obstacle races be regulated to ensure the safety of its participants

if the price the US post office charges to deliver express mail rises, the demand facing FedEx will rise because its respective services are _____ goods

substitute

what constrains the federal budget

the amount of bonds the public is willing to purchase, the money supply, tax receipts NOT the mortgage interest rate

in the market for loanable funds, the government announces new tax breaks for saving for retirement while there is an increase in demand for products, which raises the return on investment in capital, what should be expected in the market for loanable funds as a result of these two events

the amount of funds borrowed will rise but there is uncertainty about the direction of any change in interest rates

in a planned economy, most of the productive resources are owned by

the government

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

which statement is NOT an illustration of opportunity cost

the more a person works at her job, the more leisure time she has

according to the law of demand, people buy more of a good when

the price falls

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

at equilibrium price

the sum of consumer surplus and producer surplus is maximized

Tim woke up this morning with a stomachache and decided to skip class in order to get more rest. what is the opportunity cost of Tim's decision to sleep in?

the value of attending the class he decided to miss

the derivation of a production possibilities frontier assumes that

there is a fixed quantity of resources and technology available

if income is $50,000, consumption is $47,500, and savings is $2,500, then the marginal propensity to consume is

there is not enough information to answer this question

economists like to use graphs and equations primarily because

these tools efficiently express economic concepts

which statement is NOT correct about markets

they require a physical location for transactions to take place

zach has been laid off from his job as an aircraft worker. he has been actively looking for a job but has had no luck for the past 6 weeks. according to the bureau of labor statistics, zach is

unemployed

macroeconomics is concerned with issues such as

unemployment

a depressed economy has considerable slack, therefore

unemployment is high

a surplus exists

when quantity supplied exceeds the quantity demanded