macro final

What is the floor framework that the Federal Reserve uses to influence the federal funds rate?

The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $665, approximately how much will you get after these deductions?

$604.49

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer?

$927.35

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $665. How much will your work cost your employer?

$725.52

Why don't most tax expenditures help much if your federal tax bill is zero?

Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.

Monetary policy is defined as the:

adjustment of interest rates to influence economic conditions.

The Affordable Care Act is an example of:

discretionary spending.

If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to:

lower nominal wages by 1%.

On which of the following is there a tax incentive in the United States?(i) health insurance purchased through employers(ii) employer contributions for life insurance(iii) rental value on owner-occupied housing(iv) your mortgage

(i), (iii), and (iv)

You are sitting at your desk in your new job as the Chair of the Federal Reserve Bank of the United States. The interest rate where potential GDP meets real GDP is 2%, the inflation rate is 1%, and the output gap is -1%. What is the appropriate new nominal federal funds rate that you should set for the economy?

1.5%

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is -0.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

2%

What was the Fed's inflation target in 2019?

2%.

Which of the following is a reason to worry about government debt?

High and rising debt slows economic growth.

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the:

IS curve to the left.

The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the:

IS curve to the right.

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation.

IS; MP; Phillips

In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the:

MP curve down.

During the 2008 to 2009 financial crisis, imports as a share of GDP fell in the United States. Which of the following could explain this phenomenon?

The percentage decrease in imports was greater than the percentage decrease in GDP.

You have saved $747. Where should you go if you want to open a checking account?

a commercial bank

A debt crisis occurs when:

a government cannot repay its loans.

The Federal Reserve was created after:

a series of bank runs and bankruptcies.

If you see a newspaper headline that says "Steel prices rise sharply," this is an example of _____ shock.

a supply

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy?

an unchanged real interest rate, an unchanged output gap, and unexpected inflation

A financial shock is any change in:

borrowing conditions that changes the real interest rate at which people can borrow.

Russia and Kazakhstan both produce horses and oil. If Kazakhstan is much more efficient than Russia in the production of horses and slightly more efficient than Russia in the production of oil, _____ can benefit from trading horses and oil with each other.

both countries

Which of the following services are provided by local government?

bus services

When a spending shock occurs, the IS curve shifts by the:

change in spending times the multiplier.

In the IS-MP analysis in the Fed model, the MP curve shows you the:

current real interest rate.

In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes.

expansionary; raises; lowers

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock.

financial

A budget deficit occurs when:

government spending exceeds government revenue

When using the Fed model, the first step is to:

identify the shock and shift the curve.

Countries benefit from trade by exporting goods in which their opportunity costs are relatively _____ and importing goods in which their opportunity costs are relatively _____.

low; high

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be:

lower than the neutral interest rate.

If the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

lower; up

A bank run occurs when:

many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.

With a progressive tax, those with _____ income tend to pay a _____.

more; higher share of their income in taxes

In the IS-MP analysis in the Fed model, a fall in the interest rate causes a:

movement to the right along the IS curve.

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the:

output gap.

A supply shock is any change in:

production costs that leads suppliers to change the prices they charge at any given level of output

Forward guidance occurs when the Federal Reserve:

provides information about the future course of monetary policy in order to influence expectations about future interest rates.

An import is a good or service:

purchased from a foreign seller.

If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

raise; down

If the output gap is positive, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy

raise; upward; decrease

If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then:

real wages have fallen by 2.5%.

If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift:

right by $87.5 billion.

The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of:

social insurance

An export is a good or service:

sold to a foreign buyer.

Which of the following is LEAST likely to be traded internationally?

sports arenas

Tariffs on inputs lead to a _____ shock.

supply

A tariff is a:

tax on imported products.

Consider the following graph. One of the reasons that government spending rose during the 2007 to 2009 period was the introduction of:

the Affordable Care Act

The government's debt is:

the accumulation of all the deficits.

Which of the following is NOT a trade cost?

the cost of producing a good

Which of the following is an example of a trade cost associated with a U.S. citizen importing a sweater produced in India?

the cost of the tariff on imported sweaters from India

Fiscal policy is increased in its effectiveness through:

the multiplier effect

Fiscal policy works best when it is:

timely, targeted, and temporary

Suppose that one hour of labor in Singapore can produce 20 computers or 40 cellphones. Further, suppose that one hour of labor in Ireland can produce 10 computers or 15 cellphones. _____ has a comparative advantage in the production of computers. _____ has a comparative advantage in the production of cellphones.

Ireland; Singapore

The Federal Reserve's lender-of-last-resort function has been curtailed over time by the:

Dodd-Frank Act.

You are the manager of a local bank. Due to unstable financial conditions, savers are worried that your bank may fail. When they show up in large numbers to withdraw their savings, you find that you do not have enough cash to meet the obligations. Where can you turn for a loan if no other bank will lend to you?

The discount window

What is a reserve requirement?

the minimum amount of reserves that each bank must hold

Which of the following did the New Deal create?

unemployment benefits

Suppose a high-income person, a middle-income person, and a low-income person all purchase identical houses that are financed by similar mortgages. Who spends the most on tax-preferred goods?

the high-income person

If the output gap is positive, the Federal Reserve will _____ the real interest rate to _____.

raise; cool inflationary pressures

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the:

unexpected inflation from the Phillips curve.

In 2018, the unemployment rate in the United States went as low as 3.7%, as measured by the Bureau of Labor Statistics. This historically low level of unemployment occurred simultaneously with a large trade deficit. This provides evidence against which of the following arguments against international trade?

International trade may lead to job loss.

Why is the discount rate the upper bound for the federal funds rate?

It is set higher than the federal funds rate.