Macro Final MC
A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?
$10,000
Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's excess reserves?
$25,000
In the long run, an increase in investment shifts ________ because of an increased capacity to produce.
The long-run aggregate supply curve
Which of the following statements is false?
Two individuals who have the same current income but different permanent incomes are likely to make very similar savings decisions.
Economic growth can be represented by
a rightward shift of an economy's long-run aggregate supply curve.
In the long run, international trade
does not affect the natural level of employment or the real wage.
A market surplus occurs if the:
equilibrium price is below the actual price.
Which of the following is a source of wage stickiness?
fixed wage contracts, minimum wage laws, workers and firms want to avoid complexity of negotiating contracts frequently
The law requires banks to maintain
fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities.
The three major categories of government spending are
government purchases, transfer payments, and net interest.
The value of an economy's total output of goods and services is called
gross domestic product
The equation of exchange states that
gross domestic product equals the money supply multiplied by its velocity.
A cost that farm subsidies and price floors imposes on the rest of the economy is:
higher consumer commodity prices.
The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the
implementation lag.
The short run in macroeconomic analysis is a period
in which wages and some other prices do not respond to changes in economic conditions.
An expansionary fiscal policy
includes an increase in government spending, includes tax cuts, increases a government budget deficit or reduces a government budget surplus.
An increase in the demand for medical services caused by an increase in the number of people over 65 is most likely attributable to which demand shifter?
income
In the long run, a country's material standard of living is determined by:
its output relative to its population.
The government has a balanced budget if
its total revenues are equal to its total expenditures.
Which of the following is an example of a bank's assets?
loans made to customers
In the short run, an increase in net exports causes
managed float system.
All of the following are determinants of net exports except
producers' expectations about future prices.
Supply is best defined as the:
relationship between the quantity of a good or service sellers are willing to offer for sale and the independent variables that determine quantity.
One source of high health-care costs is the:
relatively small fraction of health-care expenditures paid directly by patients.
All other things unchanged, an increase in personal income tax rates will
shift the aggregate demand curve to the left.
All other things unchanged, an increase in government spending will
shift the aggregate demand curve to the right.
An increase in autonomous aggregate expenditures
shifts the aggregate demand curve to the right.
If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes:
shifts to the left.
Alexa keeps $500 readily accessible in her checking account so that she can take advantage of changes in the prices of other financial assets. This illustrates the:
speculative demand for money.
Value added is defined as:
the amount by which the value of a firm's final output exceeds the total value of the intermediate goods and services used to produce the good.
The consumption function shows
the amount of consumption at each level of disposable income, holding all other determinants constant.
The delay between the time a policy is enacted and the time the policy has its effect on the economy is called
the impact lag.
Important reasons for the rapid increase in output in the computer industry after 1980 were:
the invention of the microchip, a reduction in the size and cost of computers, and a great increase in the number of computer producers.
Which of the following is a cost of economic growth?
the sacrifice of current consumption
Government purchases are defined as:
the sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies.
When new roofing contractors entered the southern California market after the El Niño storms of 1997:
the supply increased.
Which of the following contributes to implementation lag for discretionary fiscal policy?
the time it takes to secure legislative approval for policy actions
We would expect that nations that devote a larger share of GDP to gross private domestic investment
to have higher growth rate in potential real GDP.
The rational expectations argument relies on
wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium.
Assuming a constant level of nominal income, the real income of an individual rises:
when deflation occurs in the economy.
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
will have to borrow reserves to replenish its reserve deficiency.
In the short run, a decrease in the interest rate
will shift the aggregate demand curve to the right.
If the velocity of money is constant, then a 2% increase in the money supply
would change nominal GDP by an equal percentage.
If the population of the United States is 260 million, the labor force is 130 million, and 120 million workers are employed, the rate of unemployment is
7.69%
Which of the following causes a movement along the investment demand?
A change in the interest rate
Which of the following will result in an increased price of milk?
A shift to the right of the demand curve for milk.
Which of the following will not cause a change in aggregate demand?
An increase in an economy's price level
Which of the following is an advantage of automatic stabilizers?
Because they affect disposable personal income directly, automatic stabilizers act swiftly to reduce the degree of changes in real GDP.
Which of the following will not a shift the investment demand curve?
Changes in monetary policy that affect interest rates
Which of the following is a disadvantage of a free-floating exchange rate system?
Fluctuating exchange rates make international transactions riskier and thus increase the cost of doing business with other countries.
Which of the following statements characterizes government purchases in the United States between 2001 and 2011?
Government purchases as a share of GDP have increased.
There is a _____ relationship between the quantity of investment demanded and the rate of interest.
Negative
Which of the following statements is true if interest rates were zero?
People will hold their wealth in the form of money rather than in bonds.
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed buys a $100,000 bond from Sheila Jones, who banks at the Perez Bank, and that she deposits her check in her checking account at Perez Bank.
Perez Bank's checkable deposits and reserves increase by $100,000 each.
Researchers demonstrate conclusively that drinking 4-6 ounces of ginger ale each day increases life expectancy by 3 years. What happens in the market for ginger ale?
The equilibrium price and quantity rise.
The price of apples falls. What happens in the market for apple pies?
The equilibrium price falls, and the equilibrium quantity rises.
Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level. What is the value of the multiplier?
3.5
If the rate of growth of output is 10% and the rate of growth of per capita real GDP is 6%, what is the rate of growth of population?
4
Suppose that real GDP per capita of a rich country is $40,000. Real GDP per capita in a poor country is $10,000. Suppose that rate of growth of GDP per capita in the rich country is 3.6% per year and in the poor country is 7.2% per year. Using the rule of 72, calculate how many years it will take for real GDP per capita in the poor country to catch up with GDP per capita in the rich country?
40 years
Which of the following statements is true about the U.S. national debt?
Relative to the level of economic activity, the debt is well below the levels reached during World War II, the ratio of debt to GDP rose from 1981 to 1996 and fell in the last years of the twentieth century; it began rising again in 2002, judged by international standards, the U.S. national debt relative to its GDP is above average
Which of the following is an example of income earned but not received?
Social security payroll taxes
How does the Fed decide which monetary measure should be the focus of its monetary policy choices?
The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level.
When would an economist focus on GNP rather than GDP?
When the economist wants to measure total income earned or total amount of factors of production supplied by the residents of a country
According to the permanent income hypothesis:
a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income.
To eliminate an inflationary gap, policy-makers may pursue
a contractionary policy that decreases aggregate demand.
A graph that depicts the relationship between the total quantity of goods and services demanded and the price level is the
aggregate demand curve.
Which of the following is an automatic stabilizer?
aid to families with dependent children
A decision to produce more investment goods and fewer consumption goods
allows the production of more of both types of goods in the future, requires an increase in current savings.
All of the following contributed to the U.S. recession of 2001 except
an increase in new residential construction.
Which of the following increases the demand for money?
an increase in the costs of transferring between money and non-money accounts
The substitution bias in the construction of the CPI arises because:
consumers alter the goods they buy, switching from relatively high priced goods toward lower-priced alternatives.
According to Professor Baotai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the Case in Point, expenditures for protection of persons and property
may involve some crowding out, but they also stimulated private investment by firms winning government contracts for defense purchases.
Vikram, an Indian national working for Microsoft in New York, sends $300 every month to his elderly parents who live in Bangalore, India. This activity will:
not affect the GDP or GNP of either country.
The purchase of a bond is
not considered capital.
