Macro Final Exam SH

The Board of Governors consists of

A. 7 members, appointed for 14-year terms. B. 26 members, appointed for 2-year terms. C. 14 members, appointed for 7-year terms. D. 50 members, appointed for 7-year terms.

A decrease in aggregate demand could be caused by

A. A decrease in the value of the domestic currency. B. A booming economy. C. Contractionary monetary policy. D. Expansionary monetary policy.

Wealth is measured as

A. A flow only. B. A stock only. C. Both a flow and a stock. D. Neither a flow nor a stock.

A quota is

A. A limit on the quantity of a good that may be imported. B. A tax imposed on imported goods. C. A prohibition against trading a good. D. An elimination of trade to nurture an infant industry.

Appreciation of the dollar refers to

A. A loss of foreign exchange reserves. B. An increase in the dollar price of foreign currency. C. Intervention in international money markets. D. A fall in the dollar price of a foreign currency.

Depreciation of the dollar refers to

A. A loss of foreign exchange reserves. B. An increase in the dollar price of foreign currency. C. Intervention in international money markets. D. A fall in the dollar price of a foreign currency.

An embargo is

A. A prohibition on exports or imports. B. A tax imposed on imported goods. C. A limit to the quantity of a good that may be imported in a given time period. D. An orderly marketing agreement.

A tax imposed on imported goods is

A. A tariff. B. A quota. C. An embargo. D. An example of fiscal policy.

Over a given period of time, if imports are greater than exports, the result is

A. A trade war. B. A trade deficit. C. An embargo. D. A trade surplus.

An agreement to reduce the volume of trade in a specific good is

A. A voluntary restraint agreement. B. A quota. C. An embargo. D. The terms of trade.

If the Federal Reserve raises the discount rate, we would expect the

A. AS curve to increase. B. Investment curve to increase. C. AD curve to increase. D. AD curve to decrease.

A monetary stimulus is designed to shift the

A. AS curve to the right. B. AS curve to the left. C. AD curve to the right. D. AD curve to the left.

The Federal Open Market Committee includes

A. All 7 governors and 5 of the regional Reserve bank presidents. B. 5 of the governors and all of the regional Reserve bank presidents. C. 12 of the regional Reserve bank presidents plus the chairman of the Fed. D. All 12 of the governors and all 7 of the regional Reserve bank presidents.

A budget surplus is

A. An excess of government spending over government revenues in a given time period. B. An excess of government revenues over government expenditures in a given time period. C. Used only in time of war. D. Spent during a time of fiscal restraint.

American citizens planning a vacation abroad would welcome:

A. Appreciation of the dollar. B. Depreciation of the dollar. C. Devaluation of the dollar. D. Appreciation of the foreign currency.

Automatic stabilizers tend to stabilize the level of economic activity because they

A. Are changed quickly by Congress. B. Increase the size of the multiplier. C. Increase spending during recessions and reduce spending during inflationary periods. D. Control the rate of change in prices.

The economy is experiencing high unemployment and a low rate of economic growth and the Fed decides to pursue an expansionary money policy. Which action by the Fed would be most consistent with this policy?

A. Buying government securities. B. Selling government securities. C. Raising the reserve ratio. D. Raising the discount rate.

When the Fed wishes to increase the reserves of the member banks, it

A. Buys securities. B. Raises the reserve requirement. C. Raises the discount rate. D. Sells securities.

Deficit spending occurs when

A. Consumers spend less than their income. B. Investment spending declines. C. Net export spending alters macroeconomic outcomes. D. Government spending becomes greater than the tax revenues collected.

The crowding out effect refers to a decrease in

A. Consumption or investment as a result of an increase in government borrowing. B. Investment resulting from an increase in consumption and a decrease in savings. C. Government spending resulting from a decrease in taxes. D. Consumption resulting from an increase in investment.

Exports minus imports define a country's

A. Current account balance. B. Capital account balance. C. Balance of payments. D. Trade balance.

When exchange rates are flexible, they are

A. Determined by proclamation of the monetary authorities of a country. B. Determined by the relative levels of gold reserves. C. Permitted to vary with changes in supply and demand in the foreign exchange market. D. Determined by the provisions of the Bretton Woods agreement.

A tax cut

A. Directly decreases the disposable income of consumers. B. Contains less fiscal stimulus than an increase in government spending of the same size. C. Shifts the AD curve to the left. D. Indirectly increases the disposable income of consumers.

Members of the Board of Governors are

A. Elected by the people and confirmed by the president. B. Appointed by the president and confirmed by the Senate. C. Selected by each new president at the same time the cabinet is chosen. D. Appointed by the Senate and confirmed by the House of Representatives.

Goods and services purchased from international sources are

A. Exports. B. Imports. C. Net exports. D. Net imports.

Goods and services sold to foreign buyers are

A. Exports. B. Imports. C. The terms of trade. D. A trade embargo.

Monetary policy is set by the

A. Federal Open Market Committee. B. Regional Federal Reserve banks. C. Federal Advisory Council. D. Board of Governors.

The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the

A. Federal funds rate. B. Prime rate. C. Discount rate. D. Commercial paper rate.

The structural deficit represents

A. Federal revenues minus federal expenditures at full employment under current fiscal policy. B. Federal revenues minus expenditures under current fiscal policy at current output. C. A measure of the size of recessionary or inflationary gaps. D. The difference between expenditures at full employment and expenditures at cyclical unemployment.

The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is known as

A. Fiscal policy. B. Federal funds operations. C. Open market operations. D. Zero coupon bonding.

A tax cut intended to increase aggregate demand is an example of

A. Fiscal restraint. B. Monetary restraint. C. Fiscal stimulus. D. Fiscal targeting

In contrast to the structural deficit, the cyclical deficit reflects

A. Fluctuations in economic activity. B. Fiscal policy decisions. C. Changes in discretionary fiscal policy. D. Changes in the "full-employment" deficit.

Dumping is said to occur when

A. Foreign producers sell their goods abroad at prices lower than their marginal cost of production. B. Foreign producers sell their goods abroad at prices lower than our average cost of production. C. Foreign producers sell their goods abroad at prices lower than those prevailing in their own countries. D. Some foreign countries have trade surpluses and others have a trade deficit.

As the ________ becomes larger, the distance between the line of absolute equality and the ________ becomes greater.

A. Gini coefficient; Lorenz curve B. Gini coefficient; production possibilities curve C. Lorenz curve; Gini curve D. Income distribution size; Lorenz curve.

Regional Fed banks

A. Hold deposits for individuals. B. Clear checks between private banks. C. Participate in open market operations. D. Insure the deposits in private banks.

When a country imposes tariffs, it is likely to cause

A. Increased quantities of imports. B. Higher prices for the import-competing goods. C. Lower prices for domestic production. D. Less expensive exports.

The fiscal year

A. Is the 12-month period used for federal government accounting purposes. B. Begins in January for the federal government. C. Is the period during which the government must balance the budget. D. Is used by the Federal Reserve to implement Monetary Policy.

Deficit spending results whenever the government

A. Issues bonds to finance the debt. B. Finances current expenditures that exceed current tax revenues. C. Refinances the debt. D. Operates on a pro-cyclical basis.

A country has a comparative advantage in a good if

A. It can produce more of the good than another country. B. It can produce a good at a lower opportunity cost relative to another country. C. It can specialize only in two goods. D. It also has an absolute advantage in the production of the good.

When one country can produce a given amount of a good using fewer inputs than any other country,

A. It has an absolute advantage in producing the good. B. It has a comparative advantage in producing the good. C. Specialization will definitely increase worldwide consumption possibilities. D. Specialization will definitely increase worldwide production possibilities.

A progressive income tax system is particularly effective as an automatic stabilizer because

A. It reduces demand when income falls. B. In a booming economy, taxpayers move into higher tax brackets, which restrains their spending. C. During a recession, it causes the budget deficit to fall. D. It falls more heavily on taxpayers with high MPCs, which stimulates aggregate demand.

Which of the following is true about an increase in the discount rate?

A. It reduces the cost of reserves borrowed from the Federal Reserve. B. It signals the Federal Reserve's desire to restrain money growth. C. It signals the Federal Reserve's desire to support credit creation. D. It signals the Federal Reserve's eagerness to lend additional reserves.

The fiscal year for the federal government begins on

A. January 1. B. The first Monday in January. C. September 1. D. October 1.

Excess reserves are

A. Legal reserves in excess of total reserves. B. Required reserves plus minimal reserves. C. Bank reserves in excess of required reserves. D. Total reserves minus deficient reserves.

If income is distributed equally, the

A. Lorenz curve is a straight line. B. Line of equality sags below the Lorenz curve. C. Lorenz curve sags below the line of equality. D. Gini coefficient is greater than zero.

Which of the following is a fiscal policy tool used to stimulate the economy?

A. Lower interest rates. B. Increased imports. C. Reducing inefficient employment of resources. D. Increased government purchases.

If the Fed wishes to increase the money supply, it could

A. Lower the discount rate. B. Raise the minimum reserve ratio. C. Sell securities on the open market. D. Issue more bonds.

The economy is experiencing inflation and the Federal Reserve decides to pursue a restrictive money policy. Which actions by the Fed would be most consistent with this policy?

A. Lowering the discount rate. B. Lowering the reserve ratio. C. Buying government securities. D. Selling government securities.

The equation of exchange can be stated as

A. MV = PQ. B. PV = MQ. C. MP = VQ. D. MQ = V divided by P.

The total change in aggregate spending generated by increased government spending depends on the

A. Marginal propensity to consume. B. Size of the recessionary GDP gap. C. AD shortfall. D. AD excess.

The use of government taxes and spending to alter economic outcomes is known as

A. Monetary policy. B. Fiscal policy. C. Income policy. D. Foreign trade policy.

A mathematical summary of inequality based on the Lorenz curve is known as the

A. Okun coefficient. B. Income distribution share. C. Gini coefficient. D. Lorenz coefficient.

The federal funds rate is the interest rate charged when

A. One bank lends reserves to another bank. B. The Fed lends to banks. C. The Fed lends to individuals. D. Individual banks lend to the Fed.

In order to decrease the money supply, the Fed can

A. Raise the reserve requirement, increase the discount rate, or sell bonds. B. Raise the reserve requirement, increase the discount rate, or buy bonds. C. Lower the reserve requirement, increase the discount rate, or buy bonds. D. Lower the reserve requirement, decrease the discount rate, or sell bonds.

Debt service

A. Refers to the annual interest payments on the debt. B. Is a discretionary component of the federal budget. C. Does not cost the government because it can issue new debt. D. Is a redistribution, so it does not entail opportunity costs.

If the percentage of income paid in taxes increases as income rises, then the tax system is

A. Regressive. B. Progressive. C. Marginal. D. Nominal.

A tax system in which tax rates fall as incomes rise is

A. Regressive. B. Proportional. C. Flat. D. Progressive.

The minimum amount of reserves a bank is required to hold is

A. Required reserves. B. Excess reserves. C. Total reserves. D. Legal reserves.

The federal funds rate is the interest rate for

A. Reserves borrowed from the Fed. B. Money lent to a bank's best business customers. C. Reserves lent by banks to the Fed. D. Interbank reserve loans.

The Fed can decrease the federal funds rate by

A. Selling government bonds. B. Buying government bonds, which causes market interest rates to fall. C. Simply announcing a lower rate because the Fed has direct control of this interest rate. D. Changing the money multiplier

Tariffs tend to reduce the volume of imports by

A. Setting maximum allowable import limits. B. Placing severe quality restrictions on imported goods. C. Making them more expensive to domestic consumers. D. Reducing prices of domestically produced goods.

The national debt is

A. The amount by which tax revenues exceed government spending for a given year. B. The accumulation of all annual deficit and surplus flows. C. The amount by which government spending exceeds tax revenues for a given year. D. A fairly risky asset that pays interest.

Using the equation of exchange, if real output increases by 5 percent per year and velocity is stable, in order to keep the price level stable

A. The interest rate must increase by 5 percent per year. B. Velocity must increase by 5 percent per year. C. The money supply must increase by 5 percent per year. D. The money supply must increase by more than 5 percent per year because nominal output is greater than 5 percent.

Which shift should occur if the Fed raises the discount rate?

A. The investment demand curve should shift rightward. B. The aggregate supply curve should shift rightward. C. The aggregate demand curve should shift leftward. D. The aggregate demand curve should shift rightward.

A deficit ceiling directly limits

A. The rate at which government spending can exceed government revenue. B. The amount of the national debt. C. The trade deficit. D. Inflation.

Which of the following is responsible for buying and selling government securities to influence reserves in the banking system?

A. Twelve Federal Reserve banks. B. The executive branch of government. C. The Federal Open Market Committee. D. The Board of Governors of the Federal Reserve.

With an increase in deficit spending, the

A. U.S. Treasury buys more bonds. B. U.S. exports increase. C. Aggregate supply curve shifts to the right. D. Aggregate demand curve shifts to the right.

The elements of the federal budget not determined by past legislative or executive commitments are

A. Uncontrollable fiscal spending. B. Fiscal restraint items. C. Discretionary fiscal spending. D. Automatic stabilizers.

Which of the following acts provided that parties could sue for, and if successful, collect treble damages from, monopolistic firms?

A. Wheeler-Lea Act B. Robinson-Patman Act C. Clayton Act D. Sherman Act

An arrangement under which the owners of several companies transfer their decision-making powers to a small group who then make decisions for all the firms is known as a

A. cartel B. interlocking directorate C. trust D. tying arrangement

Lowering the discount rate has the effect of:

A. changing required into excess reserves. B. changing excess into required reserves. C. making it less expensive for commercial banks to borrow from the central banks. D. forcing commercial banks to call in outstanding loans from their best customers.

The Clayton Act

A. declared monopoly and trade restraints illegal. B. banned the use of barriers to entry to prevent monopolization. C. made tying contracts illegal and banned price discrimination. D. called for the establishment of the Federal Trade Commission.

The Sherman Anti-trust Act

A. declared monopoly and trade restraints illegal. B. limited mergers that would substantially limit competition. C. made tying contracts illegal and banned price discrimination. D. called for the establishment of the Federal Trade Commission.

If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will:

A. increase the excess reserves of member banks and thus increase the money supply. B. increase the excess reserves of member banks and thus decrease the money supply. C. decrease the excess reserves of member banks and thus decrease the money supply. D. decrease the excess reserves of member banks and thus increase the money supply.

Goods which require large amounts of labor to produce the product are called

A. land intensive goods B. labor intensive goods C. capital intensive goods D. outsourced goods

The government uses ______________ to regulate the amount of money banks lend.

A. monetary policy B. fiscal policy C. banking policy D. tax cuts

Which of the following business practices, if proven to exist, is ALWAYS illegal under U.S. anti-trust law?

A. price fixing B. exclusive dealing C. tying arrangements D. all of the above are illegal

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to:

A. reduce inflation. B. save the banking industry. C. stimulate the economy. D. improve the savings rate.

Rules administered by a government agency to influence economic activity by determining conditions under which a firm may enter an industry are known as:

A. regulations B. trusts C. Anti-trust laws D. barriers to entry

Median income is

A. the same as money income. B. the middle income level. C. the average income. D. the most common income.

Actions that are in and of themselves illegal are known as

A. tying arrangements B. requirements contracts C. per se violations D. exclusive dealings

Contracts that prevent a firm from selling competing items are known as:

A. tying arrangements B. exclusive dealing C. requirements contracts D. per se violations